Incomplete Markets and Hyperbolic Discounting
AbstractA growing number of empirical researchers are finding evidence of hyperbolic discounting in their investigations on the nature of preferences for distributing consumption over time. This article contributes to the literature by exposing a large class of models in which hyperbolic and exponential discounting are observationally equivalent. The results of the modeling approach simultaneously resolve serious concerns raised by other models in the literature that have been used to explain the empirical findings and answer other questions raised by the phenomenon that are unexplained by earlier contributions. By analyzing an intertemporal general equilibrium model with incomplete insurance markets, this article demonstrates that for sufficiently short time horizons, values implied by a hyperbolic discount function fall within incomplete market valuation bounds. Copyright 2003 The Journal of Risk and Insurance.
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Bibliographic InfoArticle provided by The American Risk and Insurance Association in its journal Journal of Risk & Insurance.
Volume (Year): 70 (2003)
Issue (Month): 1 ()
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Web page: http://www.wiley.com/bw/journal.asp?ref=0022-4367&site=1
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