Time consistent Markov policies in dynamic economies with quasi-hyperbolic consumers (Q2259414)

The problem of dynamic consistency in economic models has played an important role in work in many fields in economics. In this paper the authors study the question of existence and computation of time-consistent Markov policies of quasi-hyperbolic consumers under a stochastic transition technology in a general class of economics with multidimensional action spaces and uncountable state spaces. As a way of circumventing these problems, Peleg and Yaari proposed a dynamic game interpretation of the time-consistency problem. In this view one envisions the decision maker a dynamic game between ones current self and each of her future ''selves'' with the appropriate solution concept in the game being a subgame-perfect Nash equilibrium (SPNE). A SPNE of the appropriate game need not be an optimal-time consistent policy-moreover, even if the question of existence of SPNE is resolved ,the existence of stationary Markov Nash equilibria (SMNE) is still not guaranteed. The authors develop a new approach in the tradition of the classical Strotz recursive approach to study equilibrium in game theoretical representation, but with an emphasis on developing constructive methods for characterizing SMNE, as well as methods for computing them -- the game theoretic structure is that of a stochastic game. The authors present applications of their methods to habit formation models, enviromental polices, and models of consumption under borrowing constraints.They also present a simple successive approximation scheme for computing extremal equilibrium. The paper is organized in six sections, the main theorems are given in Section 4 (The existence and computation of SMNE). A good examples are given in Section 5. In Section 6 we find related results and the conclusion.