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Over-savings and hyperbolic discounting

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  • Salanie, Francois
  • Treich, Nicolas

Abstract

Hyperbolic discounting models are widely seen as implying that consumers do not save enough, in accordance with the observed low rates of savings of some households. This paper qualifies this view by showing that hyperbolic consumers may ‘oversave’ in the short run. The result extends to uncertainty on future income and does not depend on whether preferences are present-biased or future-biased. A generalized comparative statics analysis of self-control is introduced, and its relationship to the analysis of uncertainty on discount factors is emphasized.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 50 (2006)
Issue (Month): 6 (August)
Pages: 1557-1570

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Handle: RePEc:eee:eecrev:v:50:y:2006:i:6:p:1557-1570

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References

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  1. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  2. Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  5. Gollier & Jullien & Treich, 2000. "Scientific progress and irreversibility : an economic interpretation of the Precautionary principle," Working Papers 156240, Institut National de la Recherche Agronomique, France.
  6. Goldman, Steven Marc, 1979. "Intertemporally Inconsistent Preferences and the Rate of Consumption," Econometrica, Econometric Society, vol. 47(3), pages 621-26, May.
  7. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  8. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January.
  9. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives For Procrastinators," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 769-816, August.
  10. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  11. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
  12. Alesina, Alberto F & Tabellini, Guido, 1988. "Voting on the Budget Deficit," CEPR Discussion Papers 269, C.E.P.R. Discussion Papers.
  13. Rabin, Matthew, 2002. "A perspective on psychology and economics," European Economic Review, Elsevier, vol. 46(4-5), pages 657-685, May.
  14. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01.
  15. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
  16. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
  17. Robert J. Barro, 1999. "Ramsey Meets Laibson In The Neoclassical Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1125-1152, November.
  18. Goldman, Steven M, 1980. "Consistent Plans," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 533-37, April.
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Citations

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Cited by:
  1. Sophie Chemarin & Caroline Orset, 2008. "Innovation and Information Acquisition Under Time Inconsistency and Uncertainty," Cahiers de recherche 0810, CIRPEE.
  2. Wigniolle, Bertrand, 2013. "Fertility in the absence of self-control," Mathematical Social Sciences, Elsevier, vol. 66(1), pages 71-86.
  3. Caliendo, Frank N. & Findley, T. Scott, 2014. "Discount functions and self-control problems," Economics Letters, Elsevier, vol. 122(3), pages 416-419.
  4. Dionne, Georges & Gauthier, Geneviève & Hammami, Khemais & Maurice, Mathieu & Simonato, Jean-Guy, 2011. "A reduced form model of default spreads with Markov-switching macroeconomic factors," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 1984-2000, August.
  5. Nicolas Drouhin, 2009. "Hyperbolic discounting may be time consistent," Economics Bulletin, AccessEcon, vol. 29(4), pages 2549-2555.
  6. repec:hal:cesptp:halshs-00565321 is not listed on IDEAS
  7. Winkler, Ralph, 2009. "Now or Never: Environmental Protection under Hyperbolic Discounting," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(12), pages 1-22.
  8. CREMER, Helmuth & PESTIEAU, Pierre, 2010. "Myopia, redistribution and pensions," CORE Discussion Papers 2010038, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Matthias Wrede, 2011. "Hyperbolic discounting and fertility," Journal of Population Economics, Springer, vol. 24(3), pages 1053-1070, July.
  10. Savorelli, Luca, 2008. "Know Thyself: Self Awareness and Utility Misprediction in Discounting Models of Intertemporal Choice," AICCON Working Papers 57-2008, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  11. repec:hal:cesptp:halshs-00823264 is not listed on IDEAS
  12. Lin Zhang, 2013. "Saving and retirement behavior under quasi-hyperbolic discounting," Journal of Economics, Springer, vol. 109(1), pages 57-71, May.
  13. Kylymnyuk, Dmytro & Wagner, Alexander K., 2012. "Commitment through risk," Economics Letters, Elsevier, vol. 116(3), pages 295-297.
  14. Higashi, Youichiro & Hyogo, Kazuya & Takeoka, Norio, 2009. "Subjective random discounting and intertemporal choice," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1015-1053, May.
  15. repec:hal:journl:halshs-00344463 is not listed on IDEAS

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