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On the time consistency of collective preferences

Luis Alcalá ()

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Abstract: A dynamic model of collective consumption and saving decisions made by a finite number of agents with constant but different discount rates is developed. Collective utility is a weighted sum of individual utilities with time-varying utility weights. Under standard separability assumptions, it is shown that collective preferences may be nonstationary but still satisfy time consistency. The assumption of time-varying weights is key to balance the need of the group for a changing distribution of consumption among its members over time with their tolerance for consumption fluctuations.

Date: 2016-07, Revised 2018-07
New Economics Papers: this item is included in nep-mic and nep-upt
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Handle: RePEc:arx:papers:1607.02688