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Instantaneous Gratification

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  • Laibson, David I.
  • Harris, Christopher

Abstract

Extending Barro (1999) and Luttmer & Mariotti (2003), we introduce a new model of time preferences: the instantaneous-gratiï¬ cation model. This model applies tractably to a much wider range of settings than existing models. It applies to both complete- and incomplete-market settings and it works with generic utility functions. It works in settings with linear policy rules and in settings in which equilibrium cannot be supported by linear rules. The instantaneous-gratiï¬ cation model also generates a unique equilibrium, even in inï¬ nite-horizon applications, thereby resolving the multiplicity problem hitherto associated with dynamically inconsistent models. Finally, it simultaneously features a single welfare criterion and a behavioral tendency towards overconsumption

Suggested Citation

  • Laibson, David I. & Harris, Christopher, 2012. "Instantaneous Gratification," Scholarly Articles 9918802, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:9918802
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    References listed on IDEAS

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    1. Per Krusell & Anthony A. Smith, Jr., 2003. "Consumption--Savings Decisions with Quasi--Geometric Discounting," Econometrica, Econometric Society, vol. 71(1), pages 365-375, January.
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    More about this item

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • 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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