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

Author

Listed:
  • Abi Adams

    (Institute for Fiscal Studies and University of Oxford)

  • Laurens Cherchye

    (Institute for Fiscal Studies and University of Leuven)

  • Bram De Rock

    (Institute for Fiscal Studies and ECARES)

  • Ewout Verriest

    (Institute for Fiscal Studies)

Abstract

In this paper, we develop a revealed preference methodology that allows us to explore whether time inconsistencies in household choice are the product of individual preference nonstationarities 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 household choice enables the vast majority of observed behaviour to be rationalised by a theory that assumes preference stationarity at the individual level. The methodology created in this paper also facilitates the recovery of theory-consistent discount rates for each individual within a particular household under study. We find that couples characterised by lower divergence in spousal discount rates are older, which we take as an indication of experiencing higher match quality.

Suggested Citation

  • Abi Adams & Laurens Cherchye & Bram De Rock & Ewout Verriest, 2014. "Consume now or later? Time inconsistency, collective choice and revealed preference," IFS Working Papers W14/08, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:14/08
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    File URL: http://www.ifs.org.uk/wps/wp201408.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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