TY - JOUR
T1 - Additive habit formation
T2 - Consumption in incomplete markets with random endowments
AU - Muraviev, Roman
PY - 2011/9
Y1 - 2011/9
N2 - We provide a detailed characterization of the optimal consumption stream for the additive habit-forming utility maximization problem, in a framework of general discrete-time incomplete markets and random endowments. This characterization allows us to derive the monotonicity and concavity of the optimal consumption as a function of wealth, for several important classes of incomplete markets and preferences. These results yield a deeper understanding of the fine structure of the optimal consumption and provide a further theoretical support for the classical conjectures of Keynes (The general theory of employment, interest and money. Cambridge University Press, Cambridge, 1936).
AB - We provide a detailed characterization of the optimal consumption stream for the additive habit-forming utility maximization problem, in a framework of general discrete-time incomplete markets and random endowments. This characterization allows us to derive the monotonicity and concavity of the optimal consumption as a function of wealth, for several important classes of incomplete markets and preferences. These results yield a deeper understanding of the fine structure of the optimal consumption and provide a further theoretical support for the classical conjectures of Keynes (The general theory of employment, interest and money. Cambridge University Press, Cambridge, 1936).
KW - Consumption
KW - Habit formation
KW - Incomplete markets
KW - Random endowments
KW - Utility maximization
UR - https://www.scopus.com/pages/publications/80053333867
U2 - 10.1007/s11579-011-0049-y
DO - 10.1007/s11579-011-0049-y
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AN - SCOPUS:80053333867
SN - 1862-9679
VL - 5
SP - 67
EP - 99
JO - Mathematics and Financial Economics
JF - Mathematics and Financial Economics
IS - 2
ER -