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Author: | Dybvig, P. |
Title: | Duesenberry's ratcheting of consumption: optimal dynamic consumption and investment given intolerance for any decline in standard of living |
Journal: | Review of Economic Studies
1995 : APR, VOL. 62:2(211), p. 287-314 |
Index terms: | CONSUMPTION DYNAMIC MODELS INVESTMENT |
Language: | eng |
Abstract: | Dueseberry's ratcheting consumption demand is derived as a feature of the optimal dynamic consumption and investment policy given extreme habit formation that prevents consumption from falling over time. Preferences are in effect non-time-separable extended-real-valued von Neumann-Morgenstern preferences. Consumption increases each time wealth reaches a new maximum. Risky investment is proportional to the excess of wealth over the perpetuity value of current consumption. |
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