(a) Will dynastic preferences, such as those discussed in Section 5.2, lead to infinite-horizon maximization if the instantaneous utility functions of future generations are different (ut(.) potentially different for each generation t)? (b) How would the results be different if an individual cares about the continuation utility of his offspring with discount factor β, but also cares about the continuation utility of the offspring of his offspring with a smaller discount factor δ?

(a) Will dynastic preferences, such as those discussed in Section 5.2, lead to infinite-horizon maximization if the instantaneous utility functions of future generations are different (ut(.) potentially different for each generation t)? (b) How would the results be different if an individual cares about the continuation utility of his offspring with discount factor β, but also cares about the continuation utility of the offspring of his offspring with a smaller discount factor δ?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.8P

See similar textbooks

Similar questions

Show that a decision maker who has a linear utility function will rank two lotteries according to their expected value.
A project management consultant estimated that if a particular project was completed,? years after completion,? thousand persons would benefit directly from the project,where ?(?) =(? 3/3)− 4.5?2 + 16? , 0 ≤ ? ≤ 10 For what value of ?,will the largest number of people receive direct benefits?
4) Consider investors with preferences represented by the utility function U = E(r) – Ao². (a) Draw the indifference curve representing a utility level of 10% for an in- vestor with a risk aversion parameter A = 3 in expected return-standard deviation space. (b) In the same graph, draw the indifference curve representing a utility level of 15% for an investor with a risk aversion parameter A = 3. (c) In the same graph, draw the indifference curve representing a utility level of 10% for an investor with a risk aversion parameter A = 5.
Homothetic preferences cannot be quasi - linear. True or False
Show that a decision maker who has a linear utilityfunction will rank two lotteries according to their expectedvalue.
Question 1) Dave is an expected utility maximizer and his von Neumann-Morgenstern utility function is given by u(w) = = (w). He has an initial wealth of $27,000. 199 √99+7 (a) Determine the risk attitude of this economic agent. b) If John is facing a risk of losing $19,000 with probability 0.1, write down his prospective final wealth and the associated probabilities in the form of a lottery. (c) Facing the risk of losing $19,000 with probability 0.1, what would be the maximum that Dave is willing to pay for 19,000 units of a contingent claim that pays $1 if and only if the loss occurs.
If members of a society have transitive preferences, then that society as a whole must also have transitive preferences. True False
Education is a continuous variable, where en is the years of schooling of a high-ability worker and e is the years of schooling of a lower-ability worker. The cost per period of education for these types of workers is CH and c, respectively, where q > CH. The wages they receive if employers can tell them apart are WH and w. Under what conditions is a pooling equilibrium possible? Let 0 be the share of the workers with high ability. A pooling equilibrium is possible whenever the amount of education required to receive the common wage is e° such that (Properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a subscript can be created with the_ character.)
A project management consultant estimated that if a particular project was completed, t years after completion, N thousand persons would benefit directly from the project, where N(t) = t3/3 − 4.5t2 + 16t, 0 ≤ t ≤ 10 For what value of t will the largest number of people receive direct benefits?
Suppose a college athlete is deciding on when to turn pro (right out of high school, or after 1/2/3/4 years of college). If they go to college, their potential earnings increase by rate r (which is different for every year spent in college). But they have to postpone their earnings by 1 more year and pay discount rate i. What is the general decision rule for staying in school for one more year vs turning pro?
Emma has a utility functionU(x1, x2, x3) = logx1+ 0.8logx2+ 0.72logx3 incomes x1 , x2, x3 in the next three years. This is an example of (A) expected value; (B) quasi-hyperbolic utility function; (C) standard discounted utility; (D) none of the above.
Traders from the faraway nation of Chplandia have brought infected goods to market in the capital of Pcoria. As a result, a new infectious disease called chpitis is spreading through the Pcorian population. Chpitis is not fatal, but leaves victims severely disfigured for the remainder of their lives. Throughout this problem, assume no discounting of future years. Assume that everyone in Pcoria agrees that a QALY is worth $5,000. Will a 20-year-old chpitis victim decide to get the ointment, which costs $10,000? What about a 60-year-old chpitis patient? What about a 69-year-old chpitis patient? Suppose that the Pcorian government enrolls all its citizens in the Universal Insurance Program which pays (with 10% coinsurance) for any treatment. So the ointment costs patients only $1,000 out of pocket. Will a 20-year-old chpitis victim still decide to get the ointment? What about a 60-year-old chpitis patient? What about a 69-year-old chpitis patient?