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Dynamic choices of hyperbolic consumers: the continuous time case

  • Ivar Ekeland
  • Lazrak Ali

    ()

    (Sauder school of business university of british columbia)

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    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

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    File URL: http://repec.org/sed2006/up.8429.1140050923.pdf
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    Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 822.

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    Date of creation: 03 Dec 2006
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    Handle: RePEc:red:sed006:822
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    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/
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    1. Per Krusell & Anthony A. Smith, Jr., . "Consumption-Savings Decisions with Quasi-Geometric Discounting," GSIA Working Papers 2001-05, Carnegie Mellon University, Tepper School of Business.
    2. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    3. 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.
    4. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
    5. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
    6. 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.
    7. Xavier Sala-i-Martin, 1995. "Transfers, social safety nets and economic growth," Economics Working Papers 139, Department of Economics and Business, Universitat Pompeu Fabra.
    8. George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 573-597.
    9. R. A. Pollak, 1968. "Consistent Planning," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 201-208.
    10. Robert J. Barro, 1999. "Ramsey Meets Laibson in the Neoclassical Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1125-1152.
    11. Harris, Christopher & Reny, Philip & Robson, Arthur, 1995. "The Existence of Subgame-Perfect Equilibrium in Continuous Games with Almost Perfect Information: A Case for Public Randomization," Econometrica, Econometric Society, vol. 63(3), pages 507-44, May.
    12. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
    13. E. S. Phelps & R. A. Pollak, 1968. "On Second-Best National Saving and Game-Equilibrium Growth," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 185-199.
    14. Arthur J. Robson & Philip J. Reny, 2002. "Existence of subgame perfect equilibrium with public randomization: A short proof," Economics Bulletin, AccessEcon, vol. 3(24), pages 1-8.
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