Job Search and Hyperbolic Discounting: Structural Estimation and Policy Evaluation
This article estimates the degree of hyperbolic discounting in a job search model quantitatively, using data on unemployment spells and accepted wages from the NLSY. The results point to a substantial degree of hyperbolic discounting for low and medium wage workers. The structural estimates are then used to evaluate alternative policy interventions aimed at reducing unemployment. The estimated effects of a given policy can vary by up to 40%, depending on the assumed type of time discounting. Some interventions may raise the long-run utility of hyperbolic workers, and at the same time reduce unemployment duration and lower government expenditures. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2008.
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Volume (Year): 118 (2008)
Issue (Month): 531 (08)
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