Discussion Paper Details
Please find the details for DP2651 in an easy to copy and paste format below:
Title: Consumption-Savings Decisions with Quasi-Geometric Discounting
Author(s): Per Krusell and Anthony A Smith Jr.
Publication Date: January 2001
Keyword(s): Indeterminacy, Quasi-Geometric Discounting and Time Inconsistency
Programme Area(s): International Macroeconomics
Abstract: How do individuals with time-inconsistent preferences make consumption-savings decisions? We try to answer this question by considering the simplest possible form of consumption-savings problem, assuming that discounting is quasi-geometric. A solution to the decision problem is then a subgame-perfect equilibrium of a dynamic game between the individual's ?successive selves?. When the time horizon is finite, our question has a well-defined answer in terms of primitives. When the time horizon is infinite, we are left without a sharp answer: we cannot rule out the possibility that two identical individuals in the exact same situation make different decisions! In particular, there is a continuum of dynamic equilibria even if we restrict attention to equilibria where current consumption decisions depend only on current wealth.
For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2651
Krusell, P and Smith Jr., A. 2001. 'Consumption-Savings Decisions with Quasi-Geometric Discounting'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2651