Intertemporal Utility with Heterogeneous Goods and Constant Elasticity of Substitution

Arbeitspapier

We characterize intertemporal utility functions over heterogeneous goods that feature (i) a constant elasticity of substitution between goods at each point in time and (ii) a constant intertemporal elasticity of substitution for at least one of the goods. We find that a standard (stationary) intertemporal utility function is consistent with these two properties if and only if it either is of the intertemporal constant elasticity of substitution (ICES) form, that is, if all elasticities of substitution are identical, or if the instantaneous utility function is Cobb-Douglas. We also characterize the families of standard intertemporal utility functions that feature either (i) or (ii), but not the respective other property. The ICES utility function offers a simple and consistent solution for applications that use constant good-specific intertemporal substitutability. This is, for example, relevant for dual discounting of market and non-market goods.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7999

Classification and Topics

• Classification: Wirtschaft ; Intertemporal Household Choice; Life Cycle Models and Saving ; Allocative Efficiency; Cost-Benefit Analysis ; Valuation of Environmental Effects
• Subject: substitutability ; CES ; CIES ; intertemporal utility ; non-market goods

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Quaas, Martin F. ; Baumgärtner, Stefan ; Drupp, Moritz A. ; Meya, Jasper N.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/215001
• Last update: 10.03.2025, 11:43 AM CET