On the Existence of Markov-Consistent Plans under Production Uncertainty

B. Douglas Bernheim and Debraj Ray

The Review of Economic Studies, 1986, vol. 53, issue 5, 877-882

Abstract: Strotz (1956) and Pollak (1968) were among the first to study the behaviour of an economic agent whose preferences change over time. They suggested that such an agent would choose a "consistent plan" which they described as "the best plan that he would actually follow". A Markov-consistent plan has a particularly simple structure: current decisions are independent of past decisions, except insofar as past decisions affect the current values of state variables. Unfortunately, Markov-consistent plans do not generally exist. In this paper, we demonstrate that the existence problem dissappears for finite horizon problems when one introduces even a small amount of smooth uncertainty into production.

Date: 1986
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