Hyperbolic Discounting and Uniform Savings Floors

33 Pages Posted: 4 Dec 2007

See all articles by Ben Malin

Ben Malin

Federal Reserve Bank of Minneapolis

Date Written: 2007

Abstract

Previous research suggests that, in partial equilibrium, individuals whose decision-making exhibits a present-bias-such as hyperbolic discounters who tend to over-consume will be in favor of having a floor imposed on their savings. In this paper, I show it is quite difficult for the introduction of a savings floor to be Pareto-improving in general equilibrium. Indeed, a necessary condition for the floor to be Pareto-improving is that it is high enough to be binding for all individuals. Even in that case, because the equilibrium interest rate is affected by the level of the savings floor, some individuals may prefer to commit to a future time path of consumption by facing a high interest rate (and no floor) rather than a high floor.

Keywords: Hyperbolic discounting, general equilibrium, commitment

JEL Classification: E21, H4, H55

Suggested Citation

Malin, Benjamin A., Hyperbolic Discounting and Uniform Savings Floors (2007). FEDS Working Paper No. 2007-59, Available at SSRN: https://ssrn.com/abstract=1050801 or http://dx.doi.org/10.2139/ssrn.1050801

Benjamin A. Malin (Contact Author)

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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