Time-Consistent Policies

28 Pages Posted: 6 Feb 2001

See all articles by Larry S. Karp

Larry S. Karp

University of California, Berkeley

In Ho Lee

University of Southampton - Division of Economics

Date Written: December 6, 2000

Abstract

In many cases the optimal open-loop policy to influence agents who solve dynamic problems is time-inconsistent. We show how to construct a time-consistent open-loop policy rule. We also consider an additional restriction under which the time-consistent open-loop policy is stationary. We use examples to illustrate the properties of these tax rules.

Keywords: Time inconsistency, open-loop policies, stationarity

JEL Classification: C72, D83

Suggested Citation

Karp, Larry S. and Lee, In Ho, Time-Consistent Policies (December 6, 2000). Available at SSRN: https://ssrn.com/abstract=258981 or http://dx.doi.org/10.2139/ssrn.258981

Larry S. Karp (Contact Author)

University of California, Berkeley ( email )

Dept. of Agriculture & Resource Economics
313 Giannini Hall
Berkeley, CA 94720
United States
510-643-8911 (Fax)

In Ho Lee

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
(023) 8059 2529 (Phone)
(023) 8059 3858 (Fax)