A Time-Inconsistent Equilibrium Model

Tomas Bjork, Mariana Khapko () and Agatha Murgoci ()
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Mariana Khapko: University of Toronto
Agatha Murgoci: Ørsted

Chapter Chapter 20 in Time-Inconsistent Control Theory with Finance Applications, 2021, pp 199-216 from Springer

Abstract: Abstract In this chapter we apply the previously developed theory to a rather detailed study of a general equilibrium model for a production economy with time-inconsistent preferences. The model under consideration is a time-inconsistent version of the classic Cox–Ingersoll–Ross model in Cox et al. (Econometrica, 53:363–384, 1985). Our main objective is to investigate the structure of the equilibrium short rate, the equilibrium Girsanov kernel, and the equilibrium stochastic discount factor. See Appendix A for the necessary background from arbitrage theory.

Date: 2021
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DOI: 10.1007/978-3-030-81843-2_20

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