Title

The intrinsic comparative dynamics of infinite horizon optimal control problems with a time-varying discount rate and time-distance discounting

Authors

Authors

M. R. Caputo

Comments

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Abbreviated Journal Title

J. Econ. Dyn. Control

Keywords

Comparative dynamics; Optimal control; Precommitment solution; Sophisticated solution; Time-distance discounting; Time inconsistency; Time-varying discount rate; INTERTEMPORAL CHOICE; INCONSISTENCY; ANOMALIES; Economics

Abstract

The intrinsic comparative dynamics of a ubiquitous class of optimal control problems with a time-varying discount rate and time-distance discounting are derived and shown to be characterized by a positive semidefinite matrix. It is also shown that the said comparative dynamics are invariant to the functional form of the discount rate function and the type of agent. Consequently, if one limits econometric testing to the basic comparative dynamics of the given class of control problems, one cannot determine (i) the functional form of the discount rate function used by an agent, and thus if an agent is a time-consistent or time-inconsistent decision maker, or (ii) if an agent commits to a plan of action or takes into account the changing nature of his preferences when choosing a plan. (c) 2012 Elsevier B.V. All rights reserved.

Journal Title

Journal of Economic Dynamics & Control

Volume

37

Issue/Number

4

Publication Date

1-1-2013

Document Type

Article

Language

English

First Page

810

Last Page

820

WOS Identifier

WOS:000315061600006

ISSN

0165-1889

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