Estimating Discount Functions with Consumption Choices Over the Lifecycle

67 Pages Posted: 24 Aug 2007 Last revised: 29 Mar 2023

See all articles by David Laibson

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Andrea Repetto

University of Chile - Engineering Department

Jeremy Tobacman

Alfred Lerner College of Business and Economics, University of Delaware

Date Written: August 2007

Abstract

We estimate β-δ time preferences and relative risk aversion (RRA) using a lifecycle model including stochastic income, liquid and illiquid assets, credit cards, dependents, Social Security, mortality, and bequests. Preference parameters are identified by cross-tabulating four lifecycle age intervals and four balance sheet moments: the proportion of households carrying (i.e., revolving) credit card debt, average carried credit card debt, average net wealth among households carrying credit card debt, and average net wealth among households not carrying credit card debt. The sixteen moments are approximately matched by (MSM) parameter estimates β = 0:50, δ = 0:99, and RRA = 1:3.

Suggested Citation

Laibson, David I. and Repetto, Andrea and Tobacman, Jeremy, Estimating Discount Functions with Consumption Choices Over the Lifecycle (August 2007). NBER Working Paper No. w13314, Available at SSRN: https://ssrn.com/abstract=1008808

David I. Laibson (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Andrea Repetto

University of Chile - Engineering Department ( email )

Republica 701 Santiago
Chile

Jeremy Tobacman

Alfred Lerner College of Business and Economics, University of Delaware ( email )

Newark, DE 19716
United States