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Discounting and Future Selves

Author

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  • Sáez-Martí, María

    (The Research Institute of Industrial Economics)

  • Weibull, Jörgen W.

    (The Research Institute of Industrial Economics)

Abstract

Is discounting of future instantaneous utilities consistent with altruism towards future selves? More precisely, can temporal preferences, expressed as a sum of discounted instantaneous utilities, be derived from a representation in the form of a sum of discounted total utilities? We find that a representation in the quasi-exponential (ß,d)-form in Phelps and Pollak (1968) and Laibson (1997) correspond to quasi-exponential altruism towards one's future selves. For ß=1/2, these welfare weights are exponential, while for ß 1/2 in favor of one's future selves. More generally, we establish a functional equation which relates welfare weights to instantaneous-utility weights and apply this equation to a number of examples. We also postulate five desiderata for instantaneous-utility discounting. None of the usual discount functions satisfy all desiderata, but we propose a simple class of discount functions which does.

Suggested Citation

  • Sáez-Martí, María & Weibull, Jörgen W., 2002. "Discounting and Future Selves," Working Paper Series 575, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0575
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    References listed on IDEAS

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    1. Abel, Andrew B & Bernheim, B Douglas, 1991. "Fiscal Policy with Impure Intergenerational Altruism," Econometrica, Econometric Society, vol. 59(6), pages 1687-1711, November.
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    Cited by:

    1. VIEILLE, Nicolas & WEIBULL, Jörgen W., 2002. "Uniqueness in infinitely repeated decision problems," HEC Research Papers Series 755, HEC Paris.
    2. Méder, Zsombor Z. & Flesch, János & Peeters, Ronald, 2017. "Naiveté and sophistication in dynamic inconsistency," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 40-54.
    3. Assar Lindbeck & Mats Persson, 2003. "The Gains from Pension Reform," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 74-112, March.
    4. Nicola Dimitri, 2005. "Dynamic Consistency in Extensive form Decision Problems," Department of Economics University of Siena 455, Department of Economics, University of Siena.
    5. Nicola Dimitri, 2005. "Time Discounting and Time Consistency," Department of Economics University of Siena 456, Department of Economics, University of Siena.

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    More about this item

    Keywords

    Altruism; Discounting; Dynamic Inconsistency; Welfare;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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