Four Solutions First-Best Allocation: maximize g households welfare subject to resource constraint . o Cheating (Time-Inconsistent) Solution: government would like to deviate from her previous policy at the second period when k has been accumulated, because she always has incentive to reduce distortion by only taxing k &s Precommitment Solution: Open Loop Solution in the Stackelburgh Game 复9大学 ☆ Time Consistent solution: Subgame经 Perfect Equilibrium o Welfare Comparison >2>3Four Solutions ❖ First-Best Allocation: maximize household’s welfare subject to resource constraint. ❖ Cheating (Time-Inconsistent) Solution: government would like to deviate from her previous policy at the second period when k has been accumulated, because she always has incentive to reduce distortion by only taxing k. ❖ Precommitment Solution: Open￾Loop Solution in the Stackelburgh Game. ❖ Time Consistent Solution: Subgame Perfect Equilibrium. ❖ Welfare Comparison: 1 > 2 > 3 > 4