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Consume Now or Later? Time Inconsistency, Collective Choice and Revealed Preference

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  • Abi Adams
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    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 divergece 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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    Bibliographic Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 625.

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    Date of creation: 01 Oct 2012
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    Handle: RePEc:oxf:wpaper:625

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    Related research

    Keywords: Time consistency; Collective choice; Full efficiency; Renegotiation; Revealed preference;

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    19. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(456), pages F307-34, June.
    20. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(S1), pages S164-S187, February.
    21. H. M. Shefrin & Richard Thaler, 1977. "An Economic Theory of Self-Control," NBER Working Papers 0208, National Bureau of Economic Research, Inc.
    22. Ian Crawford, 2010. "Habits Revealed," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1382-1402.
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