Dynamic choices of hyperbolic consumers: the continuous time case
This paper characterizes the set of differentiable subgame perfect equilibria in a continuous time intertemporal decision optimization problem with non-constant discounting. The idea of an infinitesimal self is formalized and the equilibrium characterization takes the form of an integral equation (IE) which is reminiscent of the Hamilton-Jacobi-Bellman equation. Beginning with a local existence proof of IE, we analyze some equilibria of the consumption saving problem. We then use the equation IE to suggest a critical indeterminacy in the Ramsey growth model with non-constant discounting
|Date of creation:||03 Dec 2006|
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- Erzo G. J. Luttmer & Thomas Mariotti, 2003. "Subjective Discounting in an Exchange Economy," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 959-989, October.
- Ted O'Donoghue and Matthew Rabin ., 1997.
"Doing It Now or Later,"
Economics Working Papers
97-253, University of California at Berkeley.
- O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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