On Depth and Retrospect: “I Forget, and Forgive – but I Discount”
The discounting of future felicity flows transposes to the inter-temporal optimisation context the assumption of interest-bearing wealth or savings. The validity of the hypothesis has been challenged by several empirical (ir)regularities and by the theoretical implications for human decision processing. In this article, we explore the modifications induced by generalising the typical welfare function in order to accommodate such retrospective influences. The idea is simple – and can be thought inspired in felicity functions encompassing habit formation: to allow for accumulated welfare – of hypothetically “compounded” but also depreciating past-to-current felicity streams – to affect the periodic utility function – which therefore enjoy some durable good properties. Sensitivity of the Ramsey optimal path to the new formulation is also inspected.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 55 (2012)
Issue (Month): 3 ()
|Contact details of provider:|| Postal: |
Phone: +322 299 3523
Fax: +322 299 3523
Web page: http://www.eeri.eu/index.htm
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:eei:journl:v:55:y:2012:i:3:p:1-45. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julia van Hove)
If references are entirely missing, you can add them using this form.