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32
The assumption of a constant probability of death implies that the objective
function (equation (i)) does not change through time. There is therefore no
issue of time consistency.
5This condition is the extension to infinite time of the condition proposed by
Yaari [1965].
6Such a specification, allowing for a higher discount rate for human wealth, has
been estimated by Hayashi [1982]. His estimated coefficients, a, u, p are
related to p, 0, r by: p
=
0)
ri—p ;
0 = a —
+p
; r
p. His estimates (Table 1,
imply, at annual rates:
p =
.10;
r =
.03;
0=
—.03
7As there is no population growth in this model, the golden rule is that the net
marginal product of capital be equal to zero, r(K)
0.
8The assumption that the government can use lump-sum taxation is made to focus on
the effects of finite horizons. As is well understood, if lump—sum taxation is
not available, there is a role for debt policy even if agents have infinite
horizons.