Budget-Constrained Search

Richard Manning and Julian Manning
Additional contact information
Richard Manning: Department of Economics, State University of New York at Buffalo
Julian Manning: Department of Economics, University of New South Wales and Department of Economics, University of Pennsylvania

Game Theory and Information from EconWPA

Abstract: A consumer with diminishing marginal utility in consumption, who can search for lower prices, will balance the gains from spreading consumption evenly through time against the benefits of delaying consumption until lower prices are revealed. Optimal programs of consumption, savings and price are characterized for a general formulation of this problem. Intertemporal substitutability is measured by relative-risk aversion. Small relative-risk aversion is sufficient for the intuitive solution: As the best current price rises, more search and less consumption is done. The general model is adapted to special cases. Among other things, this shows that linear utility and sequential search implies calculable reservation prices and consumption only when search stops. However, this characterization is a consequence of the restriction to linear utility. Outside of this context reservation prices and consumption may not be calculable.

JEL-codes: C7 D8 (search for similar items in EconPapers)
Date: 1994-06-17, Revised 1994-06-17
Note: 24 pages, TeX file, macros included
View list of references

Downloads: (external link)
http://129.3.20.41/eps/game/papers/9406/9406001.pdf (application/pdf)
http://129.3.20.41/eps/game/papers/9406/9406001.ps.gz (application/postscript)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpga:9406001

Access Statistics for this paper

More papers in Game Theory and Information from EconWPA
Series data maintained by EconWPA ().