Optimal consumption choice with intolerance for declining standard of living

Journal of Mathematical Economics, 2009, vol. 45, issue 7-8, 449-464

Abstract: We reconsider the optimal consumption choice of investors who do not tolerate any decline in their consumption rate. We connect the demand behavior of such agents to the behavior of standard time-additive agents. With consumption ratcheting, the investor demands the running maximum of the optimal plan a conventional time-additive investor with lower initial wealth would choose. The analysis is carried out for Lévy processes, in particular for jump-diffusions. We obtain explicit solutions for all Bernoulli utility functions, not only those of CRRA type.

Keywords: Intertemporal consumption choice; Habit formation; Nontime separable utility (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (8)

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Working Paper: Optimal consumption choice with intolerance for declining standard of living (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:45:y:2009:i:7-8:p:449-464

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