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

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  • Campo, Juan Carlos Chavez-Martin del

Abstract

This paper incorporates the phenomenon of time inconsistency into the problem of designing an optimal transfer schedule. It is shown that if program beneciaries 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
    DOI: 10.22004/ag.econ.127040
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    JEL classification:

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

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