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Aversion for early death and the structure of time preference

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    This papers provides an explanation for time preference: we show that in the case of uncertain lifetime, future consumption should be weighted not only according to survival probability, but also according to a discount factor due to risk aversion with respect to the length of life. When individuals are not risk neutral, this discount factor is generally not exponential. Time inconsistent preferences may therefore appear as a consequence of risk aversion with respect to the length of life. Simulations based on plausible utility for life years and on realistic mortality patterns provide in fact a strong support for hyperbolic discounting.

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    Paper provided by Laboratoire d'Economie Appliquee, INRA in its series Research Unit Working Papers with number 0106.

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    Length: 49 pages
    Date of creation: Sep 2001
    Handle: RePEc:lea:leawpi:0106
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