Ruling Out Multiplicity of Smooth Equilibria in Dynamic Games: A Hyperbolic Discounting Example
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Title: | Ruling Out Multiplicity of Smooth Equilibria in Dynamic Games: A Hyperbolic Discounting Example |
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Authors: | Maliar, Lilia | Maliar, Serguei |
Research Group/s: | Análisis Económico |
Center, Department or Service: | Universidad de Alicante. Departamento de Fundamentos del Análisis Económico |
Keywords: | Hyperbolic discounting | Quasi-geometric discounting | Time inconsistency | Markov perfect equilibrium | Markov games | Turnpike theorem | Neoclassical growth model | Endogenous gridpoints | Envelope condition |
Knowledge Area: | Fundamentos del Análisis Económico |
Issue Date: | Jun-2016 |
Publisher: | Springer Science+Business Media New York |
Citation: | Dynamic Games and Applications. 2016, 6(2): 243-261. doi:10.1007/s13235-015-0177-8 |
Abstract: | The literature that conducts numerical analysis of equilibrium in models with hyperbolic (quasi-geometric) discounting reports difficulties in achieving convergence. Surprisingly, numerical methods fail to converge even in a simple, deterministic optimal growth problem that has a well-behaved, smooth closed-form solution. We argue that the reason for nonconvergence is that the generalized Euler equation has a continuum of smooth solutions, each of which is characterized by a different integration constant. We propose two types of restrictions that can rule out the multiplicity: boundary conditions and shape restrictions on equilibrium policy functions. With these additional restrictions, the studied numerical methods deliver a unique smooth solution for both the deterministic and stochastic problems in a wide range of the model’s parameters. |
Sponsor: | Lilia Maliar and Serguei Maliar acknowledge support from the Hoover Institution and Department of Economics at Stanford University, University of Alicante, Santa Clara University and MECD Grant ECO2012-36719. |
URI: | http://hdl.handle.net/10045/62608 |
ISSN: | 2153-0785 (Print) | 2153-0793 (Online) |
DOI: | 10.1007/s13235-015-0177-8 |
Language: | eng |
Type: | info:eu-repo/semantics/article |
Rights: | © Springer Science+Business Media New York 2015. The final publication is available at Springer via http://dx.doi.org/10.1007/s13235-015-0177-8 |
Peer Review: | si |
Publisher version: | http://dx.doi.org/10.1007/s13235-015-0177-8 |
Appears in Collections: | INV - Análisis Económico - Artículos de Revistas |
Files in This Item:
File | Description | Size | Format | |
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2016_Maliar_DynGamesAppl_final.pdf | Versión final (acceso restringido) | 711,54 kB | Adobe PDF | Open Request a copy |
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