Title: ON THE CONSUMPTION/DISTRIBUTION THEOREM UNDER THE LONG-RUN GROWTH CRITERION SUBJECT TO A DRAWDOWN CONSTRAINT
Abstract: Consider any discrete time sequence of investment fortunes F n which has a finite long-run growth rate [Formula: see text] when subject to the present value capital drawdown constraint F n e -rn ≥ λ * max 0≤k≤n F k e -rk , where 0 ≤ λ * < 1, in the presence of a riskless asset affording a return of e r dollars per time period per dollar invested. We show that money can be withdrawn for consumption from the invested capital without either reducing the long-run growth rate of such capital or violating the drawdown constraint for our capital sequence, while simultaneously increasing the amount of capital withdrawn for consumption at the identical long-term rate of V(r, λ * ). We extend this result to an exponentially increasing number of consumption categories and discuss how additional yearly contributions can temporarily augment the total capital under management. In addition, we assess the short-term practicality of creating such an endowment/consumption/distribution program.
Publication Year: 2010
Publication Date: 2010-09-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 1
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot