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| Author: | Fai Leung, S. |
| Title: | Uncertain lifetime, the theory of the consumer, and the life cycle hypothesis |
| Journal: | Econometrica
1994 : SEP, VOL. 62:5, p. 1233-1239 |
| Index terms: | UNCERTAINTY CONSUMERS ECONOMICS |
| Language: | eng |
| Abstract: | Despite the massive literature that builds on Yaari's pioneering contribution, the author shows that the solution of his basic model can further be characterized without making any additional assumptions. Using optimal control theory with a state-variable inequality constraint, the author proves that Yaari's model cannot have an interior solution that lasts until the maximum lifetime. Contrary to the basic life cycle hypothesis, savings must be depleted at some time before the maximum lifetime and consumption will be equal to income thereafter. |
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