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Some Mathematical Properties of the Dynamically Inconsistent Bellman Equation: A Note on the Two-sided Altruism Dynamics

Aoki, Takaaki (2013): Some Mathematical Properties of the Dynamically Inconsistent Bellman Equation: A Note on the Two-sided Altruism Dynamics.

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Abstract

This article describes some dynamic aspects on dynastic utility incorporating two-sided altruism with an OLG setting. We analyzed the special case where the weights of two-sided altruism are dynamically inconsistent. The Bellman equation for two-sided altruism proves to be reduced to one-sided dynamic problem, but the effective discount factor is different only in the current generation. We show that a contraction mapping result of value function cannot be achieved in general, and that there can locally exist an infinite number of self-consistent policy functions with distinct steady states (indeterminacy of self-consistent policy functions).

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