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Discounting and Future Selves

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Author Info

  • Sáez-Martí, María

    ()
    (The Research Institute of Industrial Economics)

  • Weibull, Jörgen W.

    ()
    (The Research Institute of Industrial Economics)

Abstract

Is discounting of future instantaneous utilities consistent with altruism towards future selves? More precisely, can temporal preferences, expressed as a sum of discounted instantaneous utilities, be derived from a representation in the form of a sum of discounted total utilities? We find that a representation in the quasi-exponential (ß,d)-form in Phelps and Pollak (1968) and Laibson (1997) correspond to quasi-exponential altruism towards one's future selves. For ß=1/2, these welfare weights are exponential, while for ß 1/2 in favor of one's future selves. More generally, we establish a functional equation which relates welfare weights to instantaneous-utility weights and apply this equation to a number of examples. We also postulate five desiderata for instantaneous-utility discounting. None of the usual discount functions satisfy all desiderata, but we propose a simple class of discount functions which does.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 575.

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Length: 23 pages
Date of creation: 21 Feb 2002
Date of revision:
Publication status: Published in Journal of Economic Theory, 2005, pages 254-266.
Handle: RePEc:hhs:iuiwop:0575

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Keywords: Altruism; Discounting; Dynamic Inconsistency; Welfare ;

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References

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  1. Andrew B. Abel & B. Douglas Bernheim, 1992. "Fiscal Policy With Impure Intergenerational Altruism," NBER Working Papers 2613, National Bureau of Economic Research, Inc.
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Cited by:
  1. Nicola Dimitri, 2005. "Dynamic Consistency in Extensive form Decision Problems," Department of Economics University of Siena 455, Department of Economics, University of Siena.
  2. Vieille, Nicolas & Weibull, Jörgen W., 2002. "Uniqueness in Infinitely Repeated Decision Problems," Working Paper Series 577, Research Institute of Industrial Economics.
  3. Nicola Dimitri, 2005. "Time Discounting and Time Consistency," Department of Economics University of Siena 456, Department of Economics, University of Siena.

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