Optimal Consumption Policy under Uncertain Income

Haim Mendelson and Yakov Amihud
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Haim Mendelson: University of Rochester

Management Science, 1982, vol. 28, issue 6, 683-697

Abstract: This paper considers the consumption behavior of a risk-averse consumer with a preference for immediate consumption who faces an uncertain income stream and plans for a finite or infinite number of periods. The consumer may borrow up to a limit or save, where both saving and borrowing are subject to the same positive rate of interest. We derive the optimal consumption policies for both finite and infinite planning horizons, investigate their characteristics, and analyze their economic and behavioral implications.

Keywords: finance-consumption; economics-utility theory; dynamic programming (search for similar items in EconPapers)
Date: 1982
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:28:y:1982:i:6:p:683-697

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