Present-Biased Individuals, Optimal Paternalism, and Transfers in Kind
Present-biased preferences cause distortions in consumption that can motivate the use of paternalistic in-kind transfers. Empirically, goods are consumed to different degrees when consumption outlay changes. Economists distinguish between necessary goods and luxury goods. A present-biased individual has an intertemporal distortion of consumption toward the present, which in turn distorts present consumption toward luxury goods. In-kind transfers of necessary goods, such as food stamps, can alleviate the intertemporal distortion and make present-biased transfer recipients better off. Further, transfers in kind are asymmetrical in the sense that they can target present-biased recipients without affecting fully rational recipients.
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"Transfers in Kind: Why They Can Be Efficient and Nonpaternalistic,"
American Economic Review,
American Economic Association, vol. 81(5), pages 1345-51, December.
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"Doing It Now or Later,"
Economics Working Papers
97-253, University of California at Berkeley.
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IZA Discussion Papers
1103, Institute for the Study of Labor (IZA).
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