Income Smoothing and Self Control: The Case of Schoolteachers
Close to half the California school districts let teachers choose whether to receive their salaries ten monthly payments or in twelve. Fisherine intertemporal maximization implies that they should choose ten payments and earn interest on their savings for their summer. But about half choose twelve installments , even though when summed over a reasonable period the foregone interest is considerable. This can be explained by the cost of exercising self control and by Laibson’s model of hyperbolic discounting. A survey of teachers supports this interpretation.
|Date of creation:||03 Feb 2003|
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- Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
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- Camerer, Colin F. & Hogarth, Robin M., 1999.
"The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework,"
1059, California Institute of Technology, Division of the Humanities and Social Sciences.
- Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
- Schelling, Thomas C, 1984. "Self-Command in Practice, in Policy, and in a Theory of Rational Choice," American Economic Review, American Economic Association, vol. 74(2), pages 1-11, May.
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