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On time-consistent policy rules for heterogeneous discounting programs

Bertrand Wigniolle and Jean-Pierre Drugeon

PSE-Ecole d'économie de Paris (Postprint) from HAL

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: Heterogeneous discounting programs; Time-consistent policy rules (search for similar items in EconPapers)
Date: 2016-03
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01307683
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Published in Journal of Mathematical Economics, Elsevier, 2016, ⟨10.1016/j.jmateco.2016.01.006⟩

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Working Paper: On Time-Consistent Policy Rules for Heterogeneous Discounting Programs (2015) Downloads
Working Paper: On Time-Consistent Policy Rules for Heterogeneous Discounting Programs (2015) Downloads
Working Paper: On Time-Consistent Policy Rules for Heterogeneous Discounting Programs (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:hal-01307683

DOI: 10.1016/j.jmateco.2016.01.006

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