Global Dynamics and Optimal Policy in the <i>Ak</i> Model with Anticipated Future Consumption-Reference-Cited by-同舟云学术

Global Dynamics and Optimal Policy in the Ak Model with Anticipated Future Consumption

Published:2024-03-13 Issue: Volume: Page:
ISSN:1935-1704
Container-title:The B.E. Journal of Theoretical Economics
language:en
Short-container-title:

Author:

Gomez Manuel A.¹²

Affiliation:

1. Department of Economics, Facultad de Economía y Empresa , 16737 Universidade da Coruña , Campus de Elviña , A Coruna , 15071 , Spain

2. ECOBAS, Universidade da Coruña, C+D Group, Departamento de Economía , 15071 A Coruña , España

Abstract

Abstract This paper analyzes the Ak model with anticipated future consumption. In the model with internal anticipation individual’s utility depends on current consumption and a forward-looking reference level which is formed from individual’s own future consumption. The global dynamics of the economy is characterized by means of a qualitative phase diagram analysis. In the model with external anticipation the consumption reference level is formed from economy-wide average future consumption, which is taken as given by individuals and causes the competitive equilibrium to be inefficient. Characterizing the global dynamics of the economy is required to characterize an optimal fiscal policy that corrects the inefficiency brought about by this external effect.

Publisher

Walter de Gruyter GmbH

Link

https://www.degruyter.com/document/doi/10.1515/bejte-2023-0080/pdf

Reference37 articles.

1. Abel, A. B. 1990. “Asset Prices Under Habit Formation and Catching Up with the Joneses.” The American Economic Review 80 (2): 38–42.

2. Bambi, M., and F. Gozzi. 2020. “Internal Habits Formation and Optimality.” Journal of Mathematical Economics 91: 165–72. https://doi.org/10.1016/j.jmateco.2020.09.008.

3. Baucells, M., and S. Bellezza. 2016. “Temporal Profiles of Instant Utility During Anticipation, Event, and Recall.” Management Science 63 (3): 729–48. https://doi.org/10.1287/mnsc.2015.2362.

4. Becker, G. S., and K. M. Murphy. 1988. “A Theory of Rational Addiction.” Journal of Political Economy 96 (4): 675–700. https://doi.org/10.1086/261558.

5. Caplin, A., and J. Leahy. 2001. “Psychological Expected Utility Theory and Anticipatory Feelings.” Quarterly Journal of Economics 116 (1): 55–79. https://doi.org/10.1162/003355301556347.