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Intertemporal strategic investment-consumption model: An example

Author

Listed:
  • Alex Barrachina

    (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)

  • Eduardo Jiménez-Fernández

    (Department of Economics, Universitat Jaume I, Castellón, Spain)

Abstract

In this paper we analyze the effect of the proportional profit-sharing rule on investment and consumption decisions in a two-period economy. We provide a particular example of an intertemporal consumption model with k = 2 agents in which they have the opportunity to invest in a project, the profit from which is shared by all the agents according to their percentage participation. We show that the equilibrium investment is unique and in pure strategies but not Pareto efficient.

Suggested Citation

  • Alex Barrachina & Eduardo Jiménez-Fernández, 2016. "Intertemporal strategic investment-consumption model: An example," Working Papers 2016/13, Economics Department, Universitat Jaume I, Castellón (Spain).
    • Handle: RePEc:jau:wpaper:2016/13
    as

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    References listed on IDEAS

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    4. , & Gallini, Nancy, 2014. "Cooperating with the Competition: Efficient Patent Pooling and the Choice of a New Standard," Economics working papers nancy_gallini-2014-2, Vancouver School of Economics, revised 06 Jan 2014.
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    More about this item

    Keywords

    Proportional profit-sharing rule; Intertemporal consumption; Consumption-investment decisions; Strategic investment; Nash equilibrium;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D1 - Microeconomics - - Household Behavior
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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