The Markov consumption problem

Michael Sattinger

Journal of Mathematical Economics, 2011, vol. 47, issue 4-5, 409-416

Abstract: The paper provides a new model of consumption behavior under uncertainty as the solution to a continuous-time dynamic control problem in which an individual moves between employment and unemployment according to a Markov process. Behavior at low asset levels and at break-even points is analyzed. An iterative procedure is developed to derive numerical solutions. The solution takes the form of two curves relating consumption to assets, one for each state of employment.

Keywords: Consumption; Unemployment; Ad hoc debt limit; Optimal control; Markov process (search for similar items in EconPapers)
Date: 2011
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Related works:
Working Paper: The Markov Consumption Problem (2010)
Working Paper: The Markov Consumption Problem (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:47:y:2011:i:4:p:409-416

DOI: 10.1016/j.jmateco.2011.04.001

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