Koopmans' Constant Discounting: A Simplification and an Extension to General Economic Growth
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Koopmans provided a well-known preference foundation for discounted utility, the most widely used model for intertemporal optimization. There were, however, some problems in his analysis. For example, there was an unforeseen implication of bounded utility. For some domains solutions have been advanced in the literature, primarily when particular production processes impose time-dependent restrictions on consumption. This paper completely resolves the problems mentioned, irrespective of what the restrictions on consumption are. It obtains complete flexibility concerningt he utility functions that can be used and concerning the conceivable economic growth. This paper, thus, provides a complete preference foundation of discounted utility, and clarifies the appeal of Koopmans’ intuitive axioms.