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On the Design of an Optimal Transfer Schedule with Time Inconsistent Preferences


  • Campo, Juan Carlos Chavez-Martin del


This paper incorporates the phenomenon of time inconsistency into the problem of designing an optimal transfer schedule. It is shown that if program bene ciaries are time inconsistent and receive all of the resources in just one payment, then the equilibrium allocation is always inecient. In the spirit of the second welfare theorem, we show that any ecient allocation can be ob- tained in equilibrium when the policymaker has full information. This assump- tion is relaxed by introducing uncertainty and asymmetric information into the model. The optimal solution reflects the dilemma that a policymaker has to face when playing the roles of commitment enforcer and insurance provider simultaneously.

Suggested Citation

  • Campo, Juan Carlos Chavez-Martin del, 2006. "On the Design of an Optimal Transfer Schedule with Time Inconsistent Preferences," Working Papers 127040, Cornell University, Department of Applied Economics and Management.
  • Handle: RePEc:ags:cudawp:127040

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    1. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2006. "Non-Welfarist Optimal Taxation And Behavioural Public Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 849-868, December.
    2. Ted O'Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 121-160.
    3. Steven M. Goldman, 1980. "Consistent Plans," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 533-537.
    4. Brito, Dagobert L. & Hamilton, Jonathan H. & Slutsky, Steven M. & Stiglitz, Joseph E., 1991. "Dynamic optimal income taxation with government commitment," Journal of Public Economics, Elsevier, vol. 44(1), pages 15-35, February.
    5. Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence From a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 635-672.
    6. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-438, April.
    7. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
    8. Bezalel Peleg & Menahem E. Yaari, 1973. "On the Existence of a Consistent Course of Action when Tastes are Changing," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 391-401.
    9. Melvin Stephens Jr., 2002. "Paycheck Receipt and the Timing of Consumption," NBER Working Papers 9356, National Bureau of Economic Research, Inc.
    10. Melvin Stephens Jr., 2003. ""3rd of tha Month": Do Social Security Recipients Smooth Consumption Between Checks?," American Economic Review, American Economic Association, vol. 93(1), pages 406-422, March.
    11. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    12. Shapiro, Jesse M., 2005. "Is there a daily discount rate? Evidence from the food stamp nutrition cycle," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 303-325, February.
    13. Thomas, Jonathan & Worrall, Tim, 1990. "Income fluctuation and asymmetric information: An example of a repeated principal-agent problem," Journal of Economic Theory, Elsevier, vol. 51(2), pages 367-390, August.
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    More about this item


    Time Inconsistency; Transfer Schedule; Hyperbolic Discounting; Self- Control Problems; Consumption; Uncertainty.; Agricultural and Food Policy; D910; H390; H550;

    JEL classification:

    • H0 - Public Economics - - General
    • D9 - Microeconomics - - Micro-Based Behavioral Economics


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