timeconsistent

Time-consistent, or time-consistency, is a property of a plan, policy, or decision rule in a dynamic setting whereby what is planned to be done at a future date remains optimal and credible when that future date arrives, given the same information and preferences. In other words, a time-consistent plan does not create incentives to deviate from it over time.

In dynamic optimization, time consistency is often analyzed through value functions and the Bellman principle. If future decisions are made using the same discounting and preferences as today, the optimal policy today induces optimal policies in all future periods. Exponential discounting typically yields time-consistent plans, while non-exponential discounting (such as hyperbolic discounting) can produce time-inconsistent behavior, where the best plan today changes as time passes.

The concept is central in macroeconomics and public policy. The classical discussion, exemplified by Kydland and Prescott in 1977, contrasts discretion with rules, arguing that discretionary policy can be time-inconsistent: a policy deemed optimal today may be abandoned by future policymakers. This creates a call for commitment mechanisms, such as rule-based policies, independent institutions, or reputational considerations, to sustain credible plans.

Applications extend beyond monetary and fiscal policy to contract design, climate and environmental policy, and corporate planning. Understanding time-consistency helps explain why policies or contracts that seem optimal ex ante may fail in practice without credible commitment, and it informs the design of institutions intended to align short-term actions with long-run objectives.