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Time-inconsistent preferences and time-inconsistent policies

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  • Guo, Nick L.
  • Caliendo, Frank N.

Abstract

Social security is commonly viewed as a commitment device for hyperbolic consumers. We argue that such common intuition is not consistent with formal economic theory. In a model where the government can choose either time-consistent or time-inconsistent policies to govern its social security arrangement and credit markets are complete, only a time-inconsistent policy achieves true commitment by hyperbolic consumers. This rules out a traditional social security program as a commitment device.

Suggested Citation

  • Guo, Nick L. & Caliendo, Frank N., 2014. "Time-inconsistent preferences and time-inconsistent policies," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 102-108.
    • Handle: RePEc:eee:mateco:v:51:y:2014:i:c:p:102-108
    DOI: 10.1016/j.jmateco.2014.01.007
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