Job search is an unpleasant activity with immediate costs and delayed benefits. The tension between long-run goals and short-run impulses may lead unemployed workers to postpone repeatedly tasks necessary to find a job. In standard economic models, agents are assumed to be time-consistent, so that a contrast between short-run and long-run preferences never arises. However, a growing literature has challenged the conventional view, and allows agents to be time inconsistent by modeling their discount function as hyperbolic (as opposed to the standard assumption of exponential discounting). Agents with hyperbolic discount functions exhibit a high degree of discounting in the short run, but a relatively low degree of discounting in the long run. Therefore, hyperbolic agents are likely to delay tasks with immediate costs and delayed benefits, whereas they would choose to perform the same task if both costs and benefits were to occur in the future. This paper estimates the structural parameters of a job search model with hyperbolic discounting and endogenous search effort. It estimates quantitatively the degree of hyperbolic discounting, and assesses its implications for the impact of various policy interventions aimed at reducing unemployment. The model is estimated using data on unemployment spells and accepted wages from the National Longitudinal Survey of Youth (NLSY). The likelihood function explicitly incorporates all the restrictions implied by the optimal dynamic programming solution to the model, and also accounts for both observed and unobserved heterogeneity. The parameters of the hyperbolic discount function are separately identified because different forms of discounting have contrasting effects on the different components of the job search process. The results point to a substantial degree of hyperbolic discounting, especially for low and medium wage workers. The structural estimates are also used to evaluate alternative policy interventions for the unemployed: a cut in unemployment benefits, a job search assistance program, monitoring search effort, monitoring the job acceptance strategy, and a re-employment bonus. I find that ignoring hyperbolic preferences may lead one to incorrect inferences on the effects of these interventions.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number
99.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:red:sed004:99
Contact details of provider: Postal: Society for Economic Dynamics Anne Stubing CV Starr Center for Applied Economics 269 Mercer Street, Room 303 New York University New York, NY 10003 Fax: 1-860-486-4463 Email: Web page: http://www.EconomicDynamics.org/society.htm More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Christian Zimmermann).
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.:
Ted O'Donoghue & Matthew Rabin, 1999.
"Doing It Now or Later,"
American Economic Review,
American Economic Association, vol. 89(1), pages 103-124, March.
[Downloadable!] (restricted)
David Laibson & Andrea Repetto & Jeremy Tobacman, 2000.
"A Debt Puzzle,"
Documentos de Trabajo
80, Centro de Economía Aplicada, Universidad de Chile.
[Downloadable!]
Other versions:
David Laibson & Andrea Repetto & Jeremy Tobacman, 2000.
"A Debt Puzzle,"
NBER Working Papers
7879, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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.)
John Ameriks & Andrew Caplin & John Leahy & Tom Tyler, 2004.
"Measuring Self-Control,"
NBER Working Papers
10514, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Stefano DellaVigna & M. Daniele Paserman, 2004.
"Job Search and Impatience,"
NBER Working Papers
10837, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: