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Hyperbolic Discounting and Uniform Savings Floor

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  • Benjamin A. Malin

    ()
    (Department of Economics, Stanford University)

Abstract

I develop a general equilibrium model populated by agents with varying degrees of hyperbolic discounting who vote for a uniform savings floor. Although partial equilibrium intuition suggests that all individuals will prefer to have some constraint on their consumption/savings decision, I find that even the smallest amount of heterogeneity in preferences leads to very large differences in preferred policies. In fact, policy preferences are extreme: each individual either prefers having no floor imposed on the population or having a floor so high that it eliminates all borrowing and lending. I demonstrate that both endogenously determined prices and dynamically inconsistent preferences are necessary for this result. Finally, I consider how the equilibrium savings floor depends on the average amount of self-control in the population.

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Bibliographic Info

Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 04-034.

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Date of creation: Aug 2005
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Handle: RePEc:sip:dpaper:04-034

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Keywords: Hyperbolic Discounting; General Equilibrium; Commitment; Voting;

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References

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  1. Steven F. Venti & David A. Wise, 2000. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Working Papers 7521, National Bureau of Economic Research, Inc.
  2. Manuel Amador & Ivan Werning & George-Marios Angeletos, 2003. "Commitment Vs. Flexibility," NBER Working Papers 10151, National Bureau of Economic Research, Inc.
  3. B. Douglas Bernheim, 1999. "Taxation and Saving," NBER Working Papers 7061, National Bureau of Economic Research, Inc.
  4. Agarwal, Sumit & Chomsisengphet, Souphala & Liu, Chunlin & Souleles, Nicholas S., 2005. "Do consumers choose the right credit contracts?," CFS Working Paper Series 2005/32, Center for Financial Studies (CFS).
  5. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  6. Benjamin A. Malin, 2007. "Hyperbolic discounting and uniform savings floors," Finance and Economics Discussion Series 2007-59, Board of Governors of the Federal Reserve System (U.S.).
  7. John Ameriks & Andrew Caplin & John Leahy & Tom Tyler, 2004. "Measuring Self-Control," NBER Working Papers 10514, National Bureau of Economic Research, Inc.
  8. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
  9. Sumit Agarwal & Souphala Chomsisengphet & Chunlin Liu & Nicholas S. Souleles, 2006. "Do consumers choose the right credit contracts?," Working Paper Series WP-06-11, Federal Reserve Bank of Chicago.
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Cited by:
  1. Nakajima, Makoto, 2013. "A tale of two commitments: equilibrium default and temptation," Working Papers 14-1, Federal Reserve Bank of Philadelphia.
  2. Benjamin A. Malin, 2005. "Hyperbolic Discounting and Uniform Savings Floor," Discussion Papers 04-034, Stanford Institute for Economic Policy Research.
  3. Makoto Nakajima, 2011. "Rising indebtedness and temptation: a welfare analysis," Working Papers 11-39, Federal Reserve Bank of Philadelphia.

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