The Public Economics of Self Control

19 Pages Posted: 24 Jan 2008 Last revised: 9 Apr 2008

See all articles by Sang Hoo Bae

Sang Hoo Bae

Clark University - Department of Economics

Attiat F. Ott

Clark University - Department of Economics

Abstract

This paper analyzes self-control problems in intertemporal consumption of a sin good where current consumption imposes a negative externality on one's future selves due to the existence of present-biased preferences. We introduce the negative externality dubbed 'internality', which is augmented by the cumulative distribution function of the sum of previous consumption. We show that the shot-run self with self-control problem over consumes the sin good compared to that of the long-run self without present-biased preferences. Further, we investigate the effectiveness of self-bargaining with the presence of an external control devise as possible punishment. The short-run self faces three possible options: do nothing, accept the long-run self's offer, or reject the offer. In the latter case an external control devices is implemented. It is shown that successful self-bargaining depends on the efficiency of the control device.

Keywords: Internality, Self-bargaing

JEL Classification: E62, H1

Suggested Citation

Bae, Sang Hoo and Ott, Attiat F., The Public Economics of Self Control. Available at SSRN: https://ssrn.com/abstract=1086889 or http://dx.doi.org/10.2139/ssrn.1086889

Sang Hoo Bae (Contact Author)

Clark University - Department of Economics ( email )

950 Main Street
Worcester, MA 01610
United States

Attiat F. Ott

Clark University - Department of Economics ( email )

950 Main Street
Worcester, MA 01610
United States

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