Obsolescence of Durable Goods and Optimal Consumption


A durable purchased at time t 2 [0;1) provides a constant service ‡ow x0 in the interval [t; t + 1]. The price of the durable is reduced periodically: it is equal to p = p0=(1 + ) in the period of time [ ; + 1), 2 N, where 0. Assume that the interest rate equal to the rate of time preference: r = . Consider a consumer that at date t = 0 has no durable and a lifetime wealth w. His optimization problem is:

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@inproceedings{Stacchetti2004ObsolescenceOD, title={Obsolescence of Durable Goods and Optimal Consumption}, author={Ennio Stacchetti and Dmitriy Stolyarov}, year={2004} }