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Instantaneous Gratification

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  • Christopher Harris
  • David Laibson

Abstract

Extending Barro (1999) and Luttmer and Mariotti (2003), we introduce a new model of time preferences: the instantaneous-gratification model. This model applies tractably to a much wider range of settings than existing models. It applies to both complete- and incomplete-market settings and it works with generic utility functions. It works in settings with linear policy rules and in settings in which equilibrium cannot be supported by linear rules. The instantaneous-gratification model also generates a unique equilibrium, even in infinite-horizon applications, thereby resolving the multiplicity problem hitherto associated with dynamically inconsistent models. Finally, it simultaneously features a single welfare criterion and a behavioral tendency towards overconsumption. JEL Codes: C6, C73, D91, E21. Copyright 2013, Oxford University Press.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 625018000000000267.

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Date of creation: 28 Oct 2001
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Handle: RePEc:cla:levarc:625018000000000267

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  1. O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Per Krusell & Anthony A. Smith, Jr., . "Consumption-Savings Decisions with Quasi-Geometric Discounting," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2001-05, Carnegie Mellon University, Tepper School of Business.
  3. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 573-97, May.
  4. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  5. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 53-73, January.
  6. Bisin, Alberto & Hyndman, Kyle, 2009. "Procrastination, self-imposed deadlines and other commitment devices," MPRA Paper 16235, University Library of Munich, Germany.
  7. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 443-77, May.
  8. Luttmer, Erzo G J & Mariotti, Thomas, 2000. "Subjective Discount Factors," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2503, C.E.P.R. Discussion Papers.
  9. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, American Economic Association, vol. 81(2), pages 1-19, May.
  10. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
  11. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
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