THE MULTI-PERIOD CONSUMPTION INVESTMENT PROBLEM AND SINGLE PERIOD ANALYSIS

Abstract

IN recent years multi-period consumption investment models have received increasing attention in the economic literature. This represents a departure from economists' early preoccupation with single-period models. Given the vast number of normative and descriptive models which have been derived based on the assumption that single-period decisions were appropriate, it would be fortuitous if the multi-period formulation of the problem led to results which were consistent with those produced by single-period models. The purpose of this paper is to synthesize the work that has been done on the multi-period consumption-investment decision in order to examine the implications for the validity of single-period models in the multi-period setting. Throughout this paper we will assume that the investor's objective is maximization of multi-period consumption. This objective function is sufficiently general to encompass all multi-period objective functions.'