(a) Will dynastic preferences, such as those discussed in Section 5.2, lead to infinite-horizon maximization if the instantaneous utility functions of future generations are different (ut(.) potentially different for each generation t)? (b) How would the results be different if an individual cares about the continuation utility of his offspring with discount factor β, but also cares about the continuation utility of the offspring of his offspring with a smaller discount factor δ?
(a) Will dynastic preferences, such as those discussed in Section 5.2, lead to infinite-horizon maximization if the instantaneous utility functions of future generations are different (ut(.) potentially different for each generation t)? (b) How would the results be different if an individual cares about the continuation utility of his offspring with discount factor β, but also cares about the continuation utility of the offspring of his offspring with a smaller discount factor δ?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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(a) Will dynastic preferences, such as those discussed in Section 5.2, lead to infinite-horizon maximization if the instantaneous utility functions of future generations are different (ut(.) potentially different for each generation t)?
(b) How would the results be different if an individual cares about the continuation utility of his offspring with discount factor β, but also cares about the continuation utility of the offspring of his offspring with a smaller discount factor δ?
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