ON TIME INCONSISTENCY - A TECHNICAL ISSUE IN STACKELBERG DIFFERENTIAL-GAMES

Stackelberg differential games are useful settings in which optimal go vernment policies can be studied. This paper argues that the analysis of these games involves a key technical issue. In particular, we quest ion the necessity for optimality of one boundary condition invoked in existing literature. The issue is of key interest because the boundary condition is largely responsible for the time inconsistency results p reviously obtained. We show that the boundary condition is not necessa ry in some cases. As a result, our finding undermines the credibility of the existing conclusions. (C) 1997 Academic Press.