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Consume now or later? Time inconsistency, collective choice and revealed preference

  • Abi ADAMS
  • Laurens CHERCHYE
  • Bram DE ROCK
  • Ewout VERRIEST

This paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit. An empirical application to household-level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level. For our particular short panel data set, simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98.4% of the sample to be rationalised by a model that assumes exponential discounting at the individual level. We also find that couples characterized by lower divergence in spousal discount rates are older, more likely to have children and wealthier, which we take as indications of experiencing higher match quality.

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File URL: http://www.econ.kuleuven.be/eng/ew/discussionpapers/Dps12/Dps1212.pdf
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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces12.12.

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Date of creation: Aug 2012
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Handle: RePEc:ete:ceswps:ces12.12
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  1. Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
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  9. repec:ner:tilbur:urn:nbn:nl:ui:12-3607141 is not listed on IDEAS
  10. Cherchye, L.J.H. & de Rock, B. & Vermeulen, F.M.P., 2009. "Opening the black box of intra-household decision-making : Theory and non-parametric empirical tests of general collective consumption models," Other publications TiSEM bc6d0cf7-c686-40a4-84f4-9, School of Economics and Management.
  11. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
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  18. Browning, Martin, 1989. "A Nonparametric Test of the Life-Cycle Rational Expectations Hypothesis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 979-92, November.
  19. Abi Adams & Laurens Cherchye & Bram De Rock & Ewout Verriest, 2014. "Consume Now or Later? Time Inconsistency, Collective Choice, and Revealed Preference," American Economic Review, American Economic Association, vol. 104(12), pages 4147-83, December.
  20. Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
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  24. Bronars, Stephen G, 1987. "The Power of Nonparametric Tests of Preference Maximization [The Nonparametric Approach to Demand Analysis]," Econometrica, Econometric Society, vol. 55(3), pages 693-98, May.
  25. Ian Crawford, 2010. "Habits Revealed," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1382-1402.
  26. Dupuy, Arnaud & Galichon, Alfred, 2012. "Personality Traits and the Marriage Market," IZA Discussion Papers 6943, Institute for the Study of Labor (IZA).
  27. Diego Ubfal, 2013. "How General Are Time Preferences? Eliciting Good-Specific Discount Rates," Working Papers 473, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  28. Arnaud Dupuy & Alfred Galichon, 2014. "Personality Traits and the Marriage Market," Journal of Political Economy, University of Chicago Press, vol. 122(6), pages 1271 - 1319.
  29. Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June.
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