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Instantaneous Gratification

  • Christopher Harris
  • David Laibson

Extending Barro (1999) and Luttmer and Mariotti (2003), we introduce a new model of time preferences: the instantaneous-gratification model. This model applies tractably to a much wider range of settings than existing models. It applies to both complete- and incomplete-market settings and it works with generic utility functions. It works in settings with linear policy rules and in settings in which equilibrium cannot be supported by linear rules. The instantaneous-gratification model also generates a unique equilibrium, even in infinite-horizon applications, thereby resolving the multiplicity problem hitherto associated with dynamically inconsistent models. Finally, it simultaneously features a single welfare criterion and a behavioral tendency towards overconsumption. JEL Codes: C6, C73, D91, E21. Copyright 2013, Oxford University Press.

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Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 128 (2013)
Issue (Month): 1 ()
Pages: 205-248

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Handle: RePEc:oup:qjecon:v:128:y:2013:i:1:p:205-248
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  1. 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.
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  4. Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
  5. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  6. repec:oup:qjecon:v:112:y:1997:i:2:p:443-77 is not listed on IDEAS
  7. Per Krusell & Anthony A Smith, Jr., 2001. "Consumption Savings Decisions with Quasi-Geometric Discounting," Levine's Working Paper Archive 625018000000000251, David K. Levine.
  8. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  9. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  10. Luttmer, Erzo G J & Mariotti, Thomas, 2000. "Subjective Discount Factors," CEPR Discussion Papers 2503, C.E.P.R. Discussion Papers.
  11. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
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