Optimal consumption choice with intolerance for declining standard of living

B-Tier
Journal: Journal of Mathematical Economics
Year: 2009
Volume: 45
Issue: 7-8
Pages: 449-464

Score contribution per author:

2.011 = (α=2.01 / 1 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

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.

Technical Details

RePEc Handle
repec:eee:mateco:v:45:y:2009:i:7-8:p:449-464
Journal Field
Theory
Author Count
1
Added to Database
2026-01-29