On time-consistent policy rules for heterogeneous discounting programs
Journal article: This article considers a new concept of social optimum for an economy populated by agents with heterogeneous discount factors. It is based upon an approach that constrains decision rules to be temporally consistent: these are stationary and unequivocally ruled by the state variable. For agents who differ only in their discount factors and have equal weights in the planner’s objective, the temporally-consistent optimal solution produces identical consumption for the agents at all time periods. In the long run, the capital stock is determined by a modified golden rule that corresponds to an average-like summation of all discount factors. The general argument is illustrated by various two-agent examples that allow for an explicit determination of the temporally consistent decision rules. Interestingly, this temporally consistent solution can be simply recovered from the characterization of a social planner’s problem with variable discounting and can also be decentralized as a competitive equilibrium through the use of various instruments.
Author(s)
Jean-Pierre Drugeon, Bertrand Wigniolle
Journal
- Journal of Mathematical Economics
Date of publication
- 2016
Keywords JEL
Keywords
- Time-consistent policy rules
- Heterogeneous discounting programs
Pages
- 174-187
URL of the HAL notice
Version
- 1
Volume
- 63