A foundation for the solution of consumption-saving behavior with a borrowing constraint and unbounded marginal utility

Eugenio Bobenrieth, Juan R.A. Bobenrieth H. and Brian Wright ()

Journal of Economic Dynamics and Control, 2008, vol. 32, issue 3, 695-708

Abstract: Models of precautionary saving or storage include cases where the marginal value of accumulated balances is unbounded, with an invariant distribution with infinite mean. Based on a uniform continuity argument, we show that a model of saving with bounded marginal value can be used to approximate the unbounded marginal value function, and the quantiles of its invariant distribution, arbitrarily accurately. These results offer a foundation for a strategy for numerical solution of marginal values in cases where they are unbounded, and for derivation of the quantiles of their invariant distributions.

Date: 2008
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Working Paper: A Foundation for the Solution of Consumption-Saving Behavior with Borrowing Constraint and Unbounded Marginal Utility (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:32:y:2008:i:3:p:695-708

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