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Optimal consumption choice for ratchet investors

Author

Listed:
  • Riedel, Frank

Abstract

The utility maximization problem of ratchet investors who do not tolerate any decline in their consumption rate is solved explicitly for all felicity functions in a Markovian framework which includes Brownian motion and Poisson processes as special cases. The optimal consumption plan turns out to be the running maximum of the optimal plan a conventional time-additive investor would choose.

Suggested Citation

  • Riedel, Frank, 2001. "Optimal consumption choice for ratchet investors," SFB 373 Discussion Papers 2001,92, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  • Handle: RePEc:zbw:sfb373:200192
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    File URL: https://www.econstor.eu/bitstream/10419/62715/1/725955678.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Intertemporal Consumption Choice; Habit Formation; Non-Time Separable Utility;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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