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Consume now or later? Time inconsistency, collective choice and revealed preference

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  • Abi ADAMS
  • Laurens CHERCHYE
  • Bram DE ROCK
  • Ewout VERRIEST

Abstract

This paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit. An empirical application to household-level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level. For our particular short panel data set, simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98.4% of the sample to be rationalised by a model that assumes exponential discounting at the individual level. We also find that couples characterized by lower divergence in spousal discount rates are older, more likely to have children and wealthier, which we take as indications of experiencing higher match quality.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces12.12.

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Date of creation: Aug 2012
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Handle: RePEc:ete:ceswps:ces12.12

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  1. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2009. "Opening the Black Box of Intrahousehold Decision Making: Theory and Nonparametric Empirical Tests of General Collective Consumption Models," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 1074-1104, December.
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Cited by:
  1. Mohammed Abdellaoui & Olivier l'Haridon & Corina Paraschiv, 2013. "Do Couples Discount Future Consequences Less than Individuals?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201320, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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