Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268745 
Year of Publication: 
2022
Series/Report no.: 
SAFE Working Paper No. 169
Version Description: 
July 1, 2022
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
We consider a class of additively time-separable life-cycle consumption-savings models with iso-elastic per period power utility featuring resistance to inter-temporal substitution of θ with linear consumption policy functions. The utility maximization problem is dynamically inconsistent for almost all specifications of effective discount factors. Pollak (1968) shows that the savings behavior of a sophisticated and a naive agent is identical with logarithmic utility (θ = 1). We extend this result by showing that the sophisticated agent saves in any period a greater fraction of her wealth than the naive agent if and only if θ ≥ 1, irrespective of the discount function.
Subjects: 
Life-Cycle Model
Discount Functions
Dynamic Inconsistency
Epstein-Zin- Weil Preferences
JEL: 
D15
D91
E21
Document Type: 
Working Paper

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