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Solving the income fluctuation problem with unbounded rewards

Li, Huiyu; Stachurski, John

Description

This paper studies the income fluctuation problem without imposing bounds on utility, assets, income or consumption. We prove that the Coleman operator is a contraction mapping over the natural class of candidate consumption policies when endowed with a metric that evaluates consumption differences in terms of marginal utility. We show that this metric is complete, and that the fixed point of the operator coincides with the unique optimal policy. As a consequence, even in this unbounded...[Show more]

CollectionsANU Research Publications
Date published: 2014
Type: Journal article
URI: http://hdl.handle.net/1885/74261
Source: Journal of Economic Dynamics and Control
DOI: 10.1016/j.jedc.2014.06.003

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