On time-consistent policy rules for heterogeneous discounting programs

Jean-Pierre Drugeon () and Bertrand Wigniolle
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Jean-Pierre Drugeon: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: This article considers a new concept of social optimum for an economy populated by agents with heterogeneous discount factors. It is based upon an approach that constrains decision rules to be temporally consistent: these are stationary and unequivocally ruled by the state variable. For agents who differ only in their discount factors and have equal weights in the planner's objective, the temporally-consistent optimal solution produces identical consumption for the agents at all time periods. In the long run, the capital stock is determined by a modified golden rule that corresponds to an average-like summation of all discount factors. The general argument is illustrated by various two-agent examples that allow for an explicit determination of the temporally consistent decision rules. Interestingly, this temporally consistent solution can be simply recovered from the characterization of a social planner's problem with variable discounting and can also be decentralized as a competitive equilibrium through the use of various instruments.

Keywords: Time-consistent policy rules; Heterogeneous discounting programs (search for similar items in EconPapers)
Date: 2016
Note: View the original document on HAL open archive server: https://hal.science/hal-01307683v1
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Citations: View citations in EconPapers (6)

Published in Journal of Mathematical Economics, 2016, 63, pp.174-187. ⟨10.1016/j.jmateco.2016.01.006⟩

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Related works:
Journal Article: On time-consistent policy rules for heterogeneous discounting programs (2016)
Working Paper: On time-consistent policy rules for heterogeneous discounting programs (2016)
Working Paper: On time-consistent policy rules for heterogeneous discounting programs (2016)
Working Paper: On Time-Consistent Policy Rules for Heterogeneous Discounting Programs (2015)
Working Paper: On Time-Consistent Policy Rules for Heterogeneous Discounting Programs (2015)
Working Paper: On Time-Consistent Policy Rules for Heterogeneous Discounting Programs (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01307683

DOI: 10.1016/j.jmateco.2016.01.006

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