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SHIGETA Yuki
Department Tokyo Keizai University , Economics Position Associate Professor |
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| Language | English |
| Publication Date | 2022/07/29 |
| Type | Research paper (scientific journal) |
| Peer Review | Peer reviewed |
| Title | Quasi-hyperbolic discounting under recursive utility and consumption–investment decisions |
| Contribution Type | Sole author |
| Journal | Journal of Economic Theory |
| Journal Type | Another Country |
| Publisher | Elsevier |
| Volume, Issue, Page | 204,pp.105518 |
| Authorship | Lead author,Corresponding author |
| Author and coauthor | Yuki Shigeta |
| Details | This paper examines an Epstein–Zin recursive utility with quasi-hyperbolic discounting in continuous time. I directly define the utility process supporting the Hamilton–Jacobi–Bellman (HJB) equation in the literature and consider Merton's optimal consumption–investment problem for application. I show that a solution to the HJB equation is the value function. The numerical and mathematical analyses show that unlike in the constant relative risk aversion utility, present bias in the Epstein–Zin utility causes economically significant overconsumption, maintaining a plausible attitude toward risks. Additionally, the sophisticated agent's preproperation occurs if and only if the elasticity of intertemporal substitution is larger than one.
Note:Open Access |
| DOI | 10.1016/j.jet.2022.105518 |
| PermalinkURL | https://doi.org/10.1016/j.jet.2022.105518 |