Non-exponential Discounting

Tomas Bjork, Mariana Khapko () and Agatha Murgoci ()
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Mariana Khapko: University of Toronto
Agatha Murgoci: Ørsted

Chapter Chapter 7 in Time-Inconsistent Control Theory with Finance Applications, 2021, pp 71-85 from Springer

Abstract: Abstract Problems with non-exponential discounting constitute an important subclass of the family of time-inconsistent problems. To see how the general theory works in a more concrete case, we now consider a fairly general model class with non-exponential discounting. As a special case, we will then study the case of hyperbolic discounting, and we will obtain an analytic solution for an example with logarithmic utility. We also discuss a generalization of the Euler equation for hyperbolic consumers, the so-called hyperbolic Euler equation of Harris and Laibson (Econometrica 69:935–957, 2001).

Date: 2021
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DOI: 10.1007/978-3-030-81843-2_7

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