Consumer Behavior and Pontryagin's Maximum Principle

Thisse, Jacques-François;Weiserbs, Daniel
(1972) , 13 pages

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  • Thisse, Jacques-FrançoisUCLouvain
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  • Weiserbs, DanielUCLouvain
    Author
Abstract
The specification of the effects of the consumer's prior decisions on his present ones with the help of the current values of state variables(1) has given a new orientation to empirical studies on demand. Nevertheless, this approach postulates an asymmetrical behavior on the consumer's part : while he takes stocks and accumulated habits into account, he neglects the implications of his present decisions for the future. Optimal control theory allowed L.Phlips(2) to overcome this contradiction: the utility function preserves the state variables of Houthakker and Taylor, but his buying plans have as objective the intertemporal maximisation of the utility functional subject to a wealth constraint instead of the traditional budget constraint. Like Janus, the consumer faces simultaneously the past as well as the future.
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Thisse, J.-F., & Weiserbs, D. (1972). Consumer Behavior and Pontryagin’s Maximum Principle (Working Paper Institut des sciences économiques 7216). https://hdl.handle.net/2078.5/275511