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Hyperbolic Discounting and Uniform Savings Floor

  • Benjamin A. Malin

    ()

    (Department of Economics, Stanford University)

I develop a general equilibrium model populated by agents with varying degrees of hyperbolic discounting who vote for a uniform savings floor. Although partial equilibrium intuition suggests that all individuals will prefer to have some constraint on their consumption/savings decision, I find that even the smallest amount of heterogeneity in preferences leads to very large differences in preferred policies. In fact, policy preferences are extreme: each individual either prefers having no floor imposed on the population or having a floor so high that it eliminates all borrowing and lending. I demonstrate that both endogenously determined prices and dynamically inconsistent preferences are necessary for this result. Finally, I consider how the equilibrium savings floor depends on the average amount of self-control in the population.

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File URL: http://www-siepr.stanford.edu/repec/sip/04-034.pdf
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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 04-034.

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Date of creation: Aug 2005
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Handle: RePEc:sip:dpaper:04-034
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  1. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  2. Steven F. Venti & David A. Wise, 2000. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Working Papers 7521, National Bureau of Economic Research, Inc.
  3. Benjamin A. Malin, 2007. "Hyperbolic discounting and uniform savings floors," Finance and Economics Discussion Series 2007-59, Board of Governors of the Federal Reserve System (U.S.).
  4. B. Douglas Bernheim, 1999. "Taxation and Saving," Working Papers 99007, Stanford University, Department of Economics.
  5. Manuel Amador & Iván Werning & George-Marios Angeletos, 2006. "Commitment vs. Flexibility," Econometrica, Econometric Society, vol. 74(2), pages 365-396, 03.
  6. Sumit Agarwal & Souphala Chomsisengphet & Chunlin Liu & Nicholas S. Souleles, 2006. "Do consumers choose the right credit contracts?," Working Paper Series WP-06-11, Federal Reserve Bank of Chicago.
  7. John Ameriks & Andrew Caplin & John Leahy & Tom Tyler, 2004. "Measuring Self-Control," NBER Working Papers 10514, National Bureau of Economic Research, Inc.
  8. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
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