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| Nicolas Drouhin |
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| ''Hyperbolic discounting may be time consistent'' |
| ( 2009, Vol. 29 No.4 ) |
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| Using dynamic programming methodology, the paper analyzes the most general conditions for an additive utility functional to represent time consistent preferences. It challenges the conventional wisdom of the domain, which, following Strotz(1956), assume that only exponential discounting is compatible with time consistent behavior. The paper gives some examples of special time consistent hyperbolic discount functions and also discuss the relation between time consistency and stationarity. |
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| Keywords: intertemporal choice, consumption
and saving, time consistency, time discounting,
exponential discounting, hyperbolic discounting |
JEL: D9 - Intertemporal Choice and Growth: General
E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data) |
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| Manuscript Received : Jul 31 2009 | | Manuscript Accepted : Oct 12 2009 |
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