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Empirical Identification of Time Preferences: Theory and An Illustration Using Convex Time Budgets

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  • Antoine Bommier
  • Bruno Lanz

Abstract

We develop a simple theoretical framework that identifies time preferences without relying on a particular utility function. Our empirical strategy requires observations about intertemporal consumption allocation decisions made under varying relative prices, and seeks to approximate the marginal rate of substitution of consumption at different dates along a constant consumption path. Doing so, we emphasize the importance of measuring the curvature of the intertemporal utility function (or willingness to substitute consumption across time). We illustrate our approach with data derived from the convex time budget procedure of Andreoni and Sprenger (AER, 2012).

Suggested Citation

  • Antoine Bommier & Bruno Lanz, 2017. "Empirical Identification of Time Preferences: Theory and An Illustration Using Convex Time Budgets," IRENE Working Papers 17-02, IRENE Institute of Economic Research.
  • Handle: RePEc:irn:wpaper:17-02
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    1. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February.
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    More about this item

    Keywords

    Intertemporal choice; Discounting behavior; Intertemporal substitution; Discounted utility model; Convex budgets;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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