Optimal consumption choice with intolerance for declining standard of living

Duesenberry introduced the notion of a ratchet investor who does not tolerate any decline in her consumption rate. We connect the demand behavior of such an agent to the behavior of standard time-additive agents. A ratchet investor demands the running maximum of the optimal plan a conventional time-additive investor with lower initial wealth would choose.

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Year of publication:	2007
Authors:	Riedel, Frank
Publisher:	Universität Bielefeld
Subject:	Habit formation \| Intertemporal consumption choice \| Non-time separable utility

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Type of publication:	Other
Language:	English
Source:	BASE

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