Non stationary additive utility and time consistency
Nicolas Drouhin ()
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
By solving dynamic optimization programs, I study the most general class of additive intertemporal utility functionals. They are not necessarily stationary, and do not necessarily multiplicatively separate a discount factor from "per-period utility". I prove that time consistency holds if and only if the period felicity function is multiplicatively separable in t, the date of decision and in s, the date of consumption, or equivalently, if the Fisherian instantaneous subjective discount rate does not depend on t. The model allows to explain"anomalies in intertemporal choice" and various empirical regularities, even when the agents are time consistent. On the other hand, the model allows to characterize the "effective consumption profile" of naive, time-inconsistent agents mathematically.
Keywords: intertemporal choice; life cycle theory of consumption and saving; stationarity; time consistency; time invariance; exponential discounting; hyperbolic discounting; aging (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mic and nep-upt
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