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Quasi-hyperbolic discounting and externalities: Can government intervention improve wefare?

Author

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  • Kotsogiannis, Christos
  • Schwager, Robert

Abstract

The recent literature has emphasized that government intervention when consumers have quasi-hyperbolic preferences ('bias for the present') over consumption is not welfare-enhancing. This paper introduces a market imperfection (which takes the form of a negative externality) and shows that government intervention is welfare-enhancing if the market imperfection is sufficiently strong or the consumers' bias for the present is weak. This conclusion holds, interestingly, even if the gocernment and the consumers share the same biased intertemporal preferences.

Suggested Citation

  • Kotsogiannis, Christos & Schwager, Robert, 2020. "Quasi-hyperbolic discounting and externalities: Can government intervention improve wefare?," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224593, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc20:224593
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    More about this item

    Keywords

    Quasi-hyperbolic preferences; optimal savings; bias for the present; time consistent policy; externalities;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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