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Non-stationary additive utility and time consistency

Nicolas Drouhin ()

Journal of Mathematical Economics, 2020, vol. 86, issue C, 1-14

Abstract: Within a continuous time life cycle model of consumption and savings, I study the properties of the most general class of additive intertemporal utility functionals. They are not necessarily stationary, and do not necessarily multiplicatively separate a discount factor from “per-period utility”. I prove rigorously that time consistency holds if and only if the per-period felicity function is multiplicatively separable in t, the date of decision and in s, the date of consumption, or equivalently, if the Fisherian instantaneous subjective discount rate does not depend on t. The model allows to explain “anomalies in intertemporal choice” even when the agents are time consistent and various empirical regularities. On the other hand, the model allows to characterize mathematically the “effective consumption profile” of naive, time-inconsistent agents.

Keywords: Time discounting; Time consistency; Stationarity of preferences; Anomalies in intertemporal choice; Life cycle theory of consumption and saving; Aging (search for similar items in EconPapers)
Date: 2020
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Working Paper: Non-stationary additive utility and time consistency (2020) Downloads
Working Paper: Non stationary additive utility and time consistency (2019) Downloads
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DOI: 10.1016/j.jmateco.2019.10.005

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