Optimal consumption choice for ratchet investors

Frank Riedel

No 2001,92, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: The utility maximization problem of ratchet investors who do not tolerate any decline in their consumption rate is solved explicitly for all felicity functions in a Markovian framework which includes Brownian motion and Poisson processes as special cases. The optimal consumption plan turns out to be the running maximum of the optimal plan a conventional time-additive investor would choose.

Keywords: Intertemporal Consumption Choice; Habit Formation; Non-Time Separable Utility (search for similar items in EconPapers)
JEL-codes: D91 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:200192

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