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Commitment, Flexibility and Optimal Screening of Time Inconsistency

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  • Simone Galberti
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    Abstract

    I study the optimal supply of ‡exible commitment devices to people who value both commitment and ‡exibility, and whose preferences exhibit varying degrees of time incon- sistency. I nd that, if time inconsistency is observable, then both a monopolist and a planner supply devices that enable each person to commit to the e¢ cient level of ‡exi- bility. If instead time inconsistency is unobservable, then both face a screening problem. To screen a more time-inconsistent from a less time-inconsistent person, the monopolist and (possibly) the planner ine¢ ciently curtail the ‡exibility of the device tailored to the rst person, and include unused options in the device tailored to the second person. These results have important policy implications for designing special savings devices that use tax incentives to help time-inconsistent people adequately save for retirement.

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    Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1520.

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    Date of creation: 01 Oct 2012
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    Handle: RePEc:nwu:cmsems:1520

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    Related research

    Keywords: Time inconsistency; self-control; commitment; ‡exibility; contracts; screen- ing; unused items. JEL Classification Numbers:D42; D62; D82; D86; D91; G21; G23;

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