New answers tagged bellman-equations
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In reference to the dynamic planning problem:
Non-separable utility means there is habit formation;
Time-separable utility by comparison means no habit formation.
The important point regarding non-habit formation is that marginal utility depends only on consumption in a single period (periods are separated). Yet when there is habit formation, it matters ...
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No. Consider the following problem: Each period, one total unit of consumption falls from the sky that can be distributed between the two agents in any way. Their per-period utility is simply how much they consume. We let $\alpha=1/2$. Assume that $\beta_1>\beta_2$; the first agent is more patient. All optimal allocations have a very simple form: The ...
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