Hyperbolic Discounting and Uniform Savings Floor
AbstractI 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 InfoPaper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 04-034.
Date of creation: Aug 2005
Date of revision:
Hyperbolic Discounting; General Equilibrium; Commitment; Voting;
Other versions of this item:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- H0 - Public Economics - - General
- H4 - Public Economics - - Publicly Provided Goods
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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