Allais-anonymity as an alternative to the discounted-sum criterion in the calculus of optimal growth II: Pareto optimality and some economic interpretations

University Library of Munich, Germany, MPRA Paper 01/2006;
Source: RePEc

ABSTRACT This paper studies the Pareto-optimality of the consensual optimum established in "Allais-anonymity as an alternative to the discounted-sum criterion I: consensual optimality" (Mabrouk 2006a). For that, a Pareto-optimality criterion is set up by the application of the generalized Karush, Kuhn and Tucker theorem and thanks to the decomposition of the space of geometrically-growing real sequences. That makes it possible to find sufficient conditions so that a bequest-rule path is Pareto-optimal. Through an example, it is then shown that the golden rule must be checked to achieve Allais-anonymous optimality. The introduction of an additive altruism makes it possible to highlight the intergenerational-preference rate compatible with Allais-anonymous optimality. In this approach, it is not any more the optimality which depends on the intergenerational-preference rate, but the optimal intergenerational-preference rate which rises from Allais-anonymous optimality.

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    ABSTRACT: The subjective value given to time, also known as the psychological interest rate, or the subjective price of time, is a core concept of the microeconomic choices. Individual decisions using a unique and constant subjective interest rate will refer to an exponential discounting function. However, many empirical and behavioural studies underline the idea of a non-flat term structure of subjective interest rates with a decreasing slope. Using an empirical test this paper aims at identifying in individual behaviours if agents see their psychological value of time decreasing or not. A sample of 243 individuals was questioned with regard to their time preference attitudes. We show that the subjective interest rates follow a negatively sloped term structure. It can be parameterized using two variables, one specifying the instantaneous time preference, the other characterizing the slope of the term structure. A trade-off law called “balancing pressure law” is identified between these two parameters. We show that the term structure of psychological rates depends strongly on gender, but appears not linked with life expectancy. In that sense, individual subjective time preference is not exposed to a tempus fugit effect. We also question the cross relation between risk aversion and time preference. On the theoretical ground, they stand as two different and independent dimensions of choices. However, empirically, both time preference attitude and slope seem directly influenced by the risk attitude.
    Journal of Economic Theory 06/2005; 122(2):254-266. · 1.24 Impact Factor

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