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Uncertain lifetime and intertemporal choice : risk aversion as a rationale for time discounting

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Author Info
Antoine Bommier ()

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Abstract

This paper makes explicit the links between preferences over lotteries on length of life and intertemporal choice. I show that the approach used by traditional life cycle models to account for uncertain survival corresponds to a strong assumption of risk neutrality with respect to the length of life. Relaxing such an assumption leads us to develop a more general formulation of lifetime utility in which time preferences are directly related to preferences over length of life. In particular, it provides an explanation for exponential and hyperbolic discounting which are found to result, in a first approximation, from constant and hyperbolic risk aversion with respect to the length of life.

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Paper provided by Laboratoire d'Economie Appliquee, INRA in its series Research Unit Working Papers with number 0108.

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Length: 35 pages
Date of creation: Dec 2001
Date of revision:
Handle: RePEc:lea:leawpi:0108

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Related research
Keywords: Intertemporal choice; life cycle model; uncertain lifetime; time inconsistency; hyperbolic discounting.;

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Obstfeld, Maurice, 1981. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1142-61, December. [Downloadable!] (restricted)
    Other versions:
  2. Leung, S.F., 1992. "Uncertain Lifetime, the Theory of the Consumer, and the Life Cycle Hypothesis," RCER Working Papers 323, University of Rochester - Center for Economic Research (RCER).
    Other versions:
  3. Antoine Bommier, 2001. "Aversion for early death and the structure of time preference," Research Unit Working Papers 0106, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
  4. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  5. 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. [Downloadable!] (restricted)
  6. George Loewenstein & Richard H Thaler, 2003. "Anomalies: Intertemporal Choice," Levine's Working Paper Archive 618897000000000784, David K. Levine. [Downloadable!]
  7. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
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  8. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
  9. George-Marios Angeletos et al., 2001. "The Hyberbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 47-68, Summer. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Antoine Bommier & Bertrand Villeneuve, 2004. "Risk Aversion and the Value of Risk to Life," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Marie-Louise Leroux, 2009. "Endogenous Differential Mortality, Non-Contractible Effort and Non Linear Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Antoine Bommier & Stéphane Zuber, 2008. "Can preferences for catastrophe avoidance reconcile social discounting with intergenerational equity?," Social Choice and Welfare, Springer, vol. 31(3), pages 415-434, October. [Downloadable!] (restricted)
  4. Frederick van der Ploeg, 2007. "Prudent Budgetary Policy: Political Economy of Precautionary Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Antoine Bommier, 2003. "Mortality and Life-Cycle Models," Research Unit Working Papers 0314, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
  6. Pierre-André Jouvet & Pierre Pestieau & Grégory Ponthière, 2008. "The Spaceship Problem Re-Examined," EconomiX Working Papers 2008-28, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  7. Marie-Louise Leroux & Grégory Ponthière, 2008. "Optimal tax policy and expected longevity: A mean and variance utility approach," PSE Working Papers 2008-46, PSE (Ecole normale supérieure). [Downloadable!]
  8. Antoine Bommier, 2001. "Aversion for early death and the structure of time preference," Research Unit Working Papers 0106, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
  9. Ryan D. Edwards, 2008. "The Cost of Uncertain Life Span," NBER Working Papers 14093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Marie-Louise Leroux & Pierre Pestieau & Grégory Ponthière, 2008. "Optimal linear taxation under endogenous longevity," PSE Working Papers 2008-49, PSE (Ecole normale supérieure). [Downloadable!]
    Other versions:
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