On time-consistent policy rules for heterogeneous discounting programs

Jean-Pierre Drugeon (1, 2) , Bertrand Wigniolle (1, 2)

1 CES - Centre d'économie de la Sorbonne
2 PSE - Paris School of Economics

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.

Mots clés: Time-consistent policy rules; Heterogeneous discounting programs

Domaines: Economies et finances

Jean-Pierre Drugeon, Bertrand Wigniolle. On time-consistent policy rules for heterogeneous discounting programs. Journal of Mathematical Economics, 2016, 63, pp.174-187. ⟨10.1016/j.jmateco.2016.01.006⟩. ⟨hal-01307683⟩