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Income Smoothing and Self Control: The Case of Schoolteachers

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Author Info

  • Thomas Mayer
  • Thomas Russell

    (Department of Economics, University of California Davis)

Abstract

Close to half the California school districts let teachers choose whether to receive their salaries ten monthly payments or in twelve. Fisherine intertemporal maximization implies that they should choose ten payments and earn interest on their savings for their summer. But about half choose twelve installments , even though when summed over a reasonable period the foregone interest is considerable. This 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.

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Bibliographic Info

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 28.

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Length: 20
Date of creation: 03 Feb 2003
Date of revision:
Handle: RePEc:cda:wpaper:02-8

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Postal: One Shields Ave., Davis, CA 95616-8578
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Web page: http://www.econ.ucdavis.edu
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Keywords: Self Control; Intertemporal Utility Maximization;

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  1. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
  2. Schelling, Thomas C, 1984. "Self-Command in Practice, in Policy, and in a Theory of Rational Choice," American Economic Review, American Economic Association, vol. 74(2), pages 1-11, May.
  3. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May.
  4. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  5. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
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