Non-constant discount rates, time inconsistency, and the golden rule
Thursday, June 10, 2010 - 2:00pm - 3:30pm
Lind 305
Ivar Ekeland (University of British Columbia)
In economic theory one typically discounts future benefits at a
constant rate. An example of this is the celebrated model of endogeneous
growth, originating with Ramsey (1928), which leads to the so-called golden
rule in macroeconomics. There are now excellent reasons (intergenerational
equity, for instance) to use non-constant discount rates. There is then a
problem of time-inconsistency: a policy which is optimal today will no
longer be so when the time comes to implement it. So optimization is
pointless, and a substitute has to be found for optimal strategies. We will
define such a substitute, namely equilibrium strategies, show how to
characterize them, and investigate what happens to the golden rule. This is
joint work with Ali Lazrak.
constant rate. An example of this is the celebrated model of endogeneous
growth, originating with Ramsey (1928), which leads to the so-called golden
rule in macroeconomics. There are now excellent reasons (intergenerational
equity, for instance) to use non-constant discount rates. There is then a
problem of time-inconsistency: a policy which is optimal today will no
longer be so when the time comes to implement it. So optimization is
pointless, and a substitute has to be found for optimal strategies. We will
define such a substitute, namely equilibrium strategies, show how to
characterize them, and investigate what happens to the golden rule. This is
joint work with Ali Lazrak.
MSC Code:
62P20
Keywords: