Non-Constant Discounting in Continuous Time

Larry S. Karp

No 969, Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: This note derives the dynamic programming equation (DPE) to a differentiable Markov Perfect equilibrium in a problem with non-constant discounting and general functional forms. We begin with a discrete stage model and take the limit as the length of the stage goes to 0 to obtain the DPE corresponding to the continuous time problem. We characterize the multiplicity of equilibria under non-constant discounting and discuss the relation between a given equilibrium of that model and the unique equilibrium of a related problem with constant discounting. We calculate the bounds of the set of candidate steady states and we Pareto rank the equilibria.

Keywords: hyperbolic discounting; time consistency; Markov equilibria; non-uniqueness; observational equivalence; Pareto efficiency (search for similar items in EconPapers)
Date: 2004-01-05
Note: oai:cdlib1:are_ucb-1062
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Journal Article: Non-constant discounting in continuous time (2007)
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