(DP 1985-03) On the Time Consistency of Optimal Plans

Jose Encarnacion, Jr.

Abstract


This paper shows that the Kydland and Prescott argument for rules versus discretion -- to the effect that optimal policies are time inconsistent -- is invalid, points out that the Pollak approach does not solve the time inconsistency problem as originally formulated by Strotz, and indicates the simple solution within the Strotz framework.

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