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Income Smoothing and Self-Control: The Case of Schoolteachers

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Author Info
Thomas Mayer
Thomas Russell

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Abstract

Approximately one-half of California's Unified School Districts give teachers a choice of receiving their annual salaries in 10 or 12 monthly payments. Intertemporal utility maximization à la Irving Fisher suggests that they should choose 10 payments and earn interest on their savings. But about 50% of the teachers choose 12 installments, even though when summed over a reasonable period the forgone interest can be considerable. This behavior can be explained by the cost of exercising self-control and by Laibson's model of hyperbolic discounting. A survey of teachers supports this interpretation. (JEL D91, D12) Copyright 2005, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbi060
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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 43 (2005)
Issue (Month): 4 (October)
Pages: 823-830
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Handle: RePEc:oup:ecinqu:v:43:y:2005:i:4:p:823-830

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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  1. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
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This page was last updated on 2009-11-19.

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