Discounting and Future Selves
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.
|Date of creation:||21 Feb 2002|
|Publication status:||Published in Journal of Economic Theory, 2005, pages 254-266.|
|Contact details of provider:|| Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden|
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- Abel, Andrew B & Bernheim, B Douglas, 1991.
"Fiscal Policy with Impure Intergenerational Altruism,"
Econometric Society, vol. 59(6), pages 1687-1711, November.
- Andrew B. Abel & B. Douglas Bernheim, 1988. "Fiscal Policy With Impure Intergenerational Altruism," NBER Working Papers 2613, National Bureau of Economic Research, Inc.