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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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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. Abi ADAMS & Laurens CHERCHYE & Bram DE ROCK & Ewout VERRIEST, 2012. "Consume now or later? Time inconsistency, collective choice and revealed preference," Center for Economic Studies - Discussion papers ces12.12, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  2. 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.
  3. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  4. 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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  6. Selten,Reinhard, . "Properties of a measure of predictive succes," Discussion Paper Serie B 130, University of Bonn, Germany.
  7. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
  8. ZUBER, Stéphane, . "The aggregation of preferences: can we ignore the past?," CORE Discussion Papers RP -2345, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. 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.
  10. George-Marios Angeletos, 2001. "The Hyberbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 47-68, Summer.
  11. Timothy K. M. Beatty & Ian A. Crawford, 2011. "How Demanding Is the Revealed Preference Approach to Demand?," American Economic Review, American Economic Association, vol. 101(6), pages 2782-95, October.
  12. Ian Crawford, 2010. "Habits Revealed," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1382-1402.
  13. Cherchye, L.J.H. & de Rock, B. & Vermeulen, F.M.P., 2004. "The Collective Model of Household Consumption : A Nonparametric Characterization," Discussion Paper 2004-76, Tilburg University, Center for Economic Research.
  14. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  15. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June.
  16. 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, Tilburg University, School of Economics and Management.
  17. 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.
  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. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  20. 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.
  21. Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
  22. Maurizio Mazzocco, 2007. "Household Intertemporal Behaviour: A Collective Characterization and a Test of Commitment," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 857-895.
  23. Becker, Gary S & Landes, Elisabeth M & Michael, Robert T, 1977. "An Economic Analysis of Marital Instability," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1141-87, December.
  24. Varian, Hal R., 1985. "Non-parametric analysis of optimizing behavior with measurement error," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 445-458.
  25. 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.
  26. Richard Thaler & Shlomo Benartzi, 2004. "Save more tomorrow: Using behavioral economics to increase employee saving," Natural Field Experiments 00337, The Field Experiments Website.
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