THE INTRINSIC QUALITATIVE PROPERTIES OF THE CLASSICAL OPTIMAL STOPPING PROBLEM ARE INVARIANT TO THE FUNCTIONAL FORM OF THE DISCOUNT FUNCTION

    Authors

    M. R. Caputo

    Comments

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    Abstract

    The intrinsic qualitative properties of a generic optimal stopping model are shown to be invariant to the functional form of the discount function. If the discount function is assumed to be a member of particular infinite parametric family-a family that includes the exponential and classical hyperbolic discount functions as special cases-an additional refutable comparative statics result is produced that holds for the entire family. Consequently, if one limits econometric tests of the model to its qualitative properties, one cannot determine the form of the discount function used by the decision maker. It is also shown that the only discount function that yields a time-consistent stopping rule is the exponential function with a constant rate of discount.

    Journal Title

    Natural Resource Modeling

    Volume

    21

    Issue/Number

    4

    Publication Date

    1-1-2008

    Document Type

    Article

    First Page

    607

    Last Page

    624

    WOS Identifier

    WOS:000260540300005

    ISSN

    0890-8575

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