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A Flexible Test for Present Bias and Time Preferences Using Land-Lease Contracts

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  • Pieter A. Gautier
  • Aico Van Vuuren

Abstract

When agents have present bias, they discount more between now and the next period than between period t (> 1) and t + 1. How fast the future discount rate (evaluated today) decays is an empirical question. We show that the discount function can be non-parametrically identified with contracts that specify payments that take place at various points in time in the future and which are traded and priced in a competitive market. We use a unique land lease-contract data set for Amsterdam, which has the above properties, to test for present bias in a flexible way. We find no evidence for present bias in this market. Even though we allow for a general-hyperbolic specification (which has exponential discounting as a special case), our estimates converge to an exponential discount function with a corresponding discount rate (in our baseline specification) of 8 %.

Suggested Citation

  • Pieter A. Gautier & Aico Van Vuuren, 2011. "A Flexible Test for Present Bias and Time Preferences Using Land-Lease Contracts," CESifo Working Paper Series 3549, CESifo.
    • Handle: RePEc:ces:ceswps:_3549
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    References listed on IDEAS

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    Cited by:

    1. Bracke, Philippe & Pinchbeck, Ted & Wyatt, James, 2014. "The time value of housing: historical evidence from London residential leases," LSE Research Online Documents on Economics 64504, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    present bias; hyperbolic discounting; discount rate; hedonic estimation;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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