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On Time-Consistent Policy Rules for Heterogeneous Discounting Programs

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This article considers a new concept of social optimum for an economy populated by agents with heterogeneous discount factors. It is based upon an approach that constrains decision rules to be temporally consistent: these are stationary and unequivocally ruled by the state variable. For agents who differ only in their discount factors and have equal weights in the planner's objective, the temporally-consistent optimal solution produces identical consumption for the agents at all time periods. In the long run, the capital stock is determined by a modified golden rule that corresponds to an average-like summation of all discount factors. The general argument is illustrated by various two-agent examples that allow for an explicit determination of the temporally consistent decision rules. Interestingly, this temporally consistent solution can be simply recovered from the characterization of a social planner's problem with variable discounting and can also be decentralised as a competitive equilibrium through the use of various instruments

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  • Jean-Pierre Drugeon & Bertand Wigniolle, 2015. "On Time-Consistent Policy Rules for Heterogeneous Discounting Programs," Documents de travail du Centre d'Economie de la Sorbonne 15082, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:15082
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    Cited by:

    1. Jean-Pierre Drugeon & Bertrand Wigniolle, 0. "On Markovian collective choice with heterogeneous quasi-hyperbolic discounting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 0, pages 1-40.
    2. Balbus, Łukasz & Reffett, Kevin & Woźny, Łukasz, 2018. "On uniqueness of time-consistent Markov policies for quasi-hyperbolic consumers under uncertainty," Journal of Economic Theory, Elsevier, vol. 176(C), pages 293-310.
    3. Jean-Pierre Drugeon & Bertrand Wigniolle, 2017. "On Time-Consistent Collective Choice with Heterogeneous Quasi- Hyperbolic Discounting," PSE Working Papers halshs-01662833, HAL.
    4. Jean-Pierre Drugeon & Bertrand Wigniolle, 2017. "On impatience, temptation and Ramsey’s conjecture," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(1), pages 73-98, January.

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    More about this item

    Keywords

    Time-Consistent Policy Rules; heterogeneous Discounting Programs;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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