Endogenous discounting and the domain of the felicity function

Ingmar Schumacher

Economic Modelling, 2011, vol. 28, issue 1, 574-581

Abstract: The objective is to show that endogenous discounting models should use a felicity function constrained to a positive domain. A variety of articles use the Mangasarian or Arrow and Kurz condition as a sufficient condition for optimality, which restricts felicity to a negative domain. Since the level of the felicity function shows up in the optimal path it leads to qualitatively different solutions when one uses a negative or positive felicity function. We suggest reasons why the domain should be positive. We furthermore derive sufficiency conditions for concavity of a transformed Hamiltonian if the felicity function is assumed to be positive.

Keywords: Endogenous time preference; Optimality; Recursive utility; Felicity (search for similar items in EconPapers)
JEL-codes: C61 D90 O41 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:1:p:574-581

DOI: 10.1016/j.econmod.2010.06.014

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