Computing Time-Consistent Markov Policies for Quasi-Hyperbolic Consumers Under Uncertainty
University of Zielona Gora - Institute of Mathematics
Arizona State University - Department of Economics
Lukasz Patryk Wozny
Warsaw School of Economics - Department of Applied and Theoretical Economics
April 6, 2011
We study the question of existence and computation of time-consistent Markov policies of quasi-hyperbolic consumers under a stochastic transition technology and borrowing constraints. Under standard assumptions on preferences, as well as a mild geometric condition on a transition probabilities, we prove existence of the greatest and the least time-consistent policies, and provide conditions for (Lipschitz) continuous and monotone equilibria. We show how our methods extend the results of Harris and Laibson (2001). We present a simple approximation scheme for extremal equilibrium, and provide some monotone equilibrium comparative statics results in the model's deep parameters.
Number of Pages in PDF File: 32
Keywords: time consistency, Markov equilibria, stochastic games, constructive methods
JEL Classification: C62, C73working papers series
Date posted: April 7, 2011
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