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Hyperbolic discounting and uniform savings floors

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  • Benjamin A. Malin

Abstract

Previous research suggests that, in partial equilibrium, individuals whose decision-making exhibits a present-bias--such as hyperbolic discounters who tend to over-consume--will be in favor of having a floor imposed on their savings. In this paper, I show it is quite difficult for the introduction of a savings floor to be Pareto-improving in general equilibrium. Indeed, a necessary condition for the floor to be Pareto-improving is that it is high enough to be binding for all individuals. Even in that case, because the equilibrium interest rate is affected by the level of the savings floor, some individuals may prefer to commit to a future time path of consumption by facing a high interest rate (and no floor) rather than a high floor.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2007-59.

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Date of creation: 2007
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Handle: RePEc:fip:fedgfe:2007-59

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Keywords: Saving and investment;

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References

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  1. 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.
  2. Malin, Benjamin A., 2008. "Hyperbolic discounting and uniform savings floors," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1986-2002, October.
  3. Steven F. Venti & David A. Wise, 2000. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Working Papers 7521, National Bureau of Economic Research, Inc.
  4. B. Douglas Bernheim, 1999. "Taxation and Saving," NBER Working Papers 7061, National Bureau of Economic Research, Inc.
  5. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  6. John Ameriks & Andrew Caplin & John Leahy & Tom Tyler, 2004. "Measuring Self-Control," NBER Working Papers 10514, National Bureau of Economic Research, Inc.
  7. Manuel Amador & George-Marios Angeletos & Ivan Werning, 2004. "Commitment vs. Flexibility," 2004 Meeting Papers 87, Society for Economic Dynamics.
  8. Sumit Agarwal & Souphala Chomsisengphet & Chunlin Liu & Nicholas S. Souleles, 2006. "Do consumers choose the right credit contracts?," Working Paper Series WP-06-11, Federal Reserve Bank of Chicago.
  9. Agarwal, Sumit & Chomsisengphet, Souphala & Liu, Chunlin & Souleles, Nicholas S., 2005. "Do consumers choose the right credit contracts?," CFS Working Paper Series 2005/32, Center for Financial Studies (CFS).
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Cited by:
  1. Benjamin A. Malin, 2005. "Hyperbolic Discounting and Uniform Savings Floor," Discussion Papers 04-034, Stanford Institute for Economic Policy Research.
  2. Nakajima, Makoto, 2013. "A tale of two commitments: equilibrium default and temptation," Working Papers 14-1, Federal Reserve Bank of Philadelphia.
  3. Makoto Nakajima, 2012. "Rising indebtedness and temptation: A welfare analysis," Quantitative Economics, Econometric Society, vol. 3(2), pages 257-288, 07.

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