Job Search and Hyperbolic Discounting: Structural Estimation and Policy Evaluation

35 Pages Posted: 15 Aug 2008

See all articles by M. Daniele Paserman

M. Daniele Paserman

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

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Abstract

This article estimates the degree of hyperbolic discounting in a job search model quantitatively, using data on unemployment spells and accepted wages from the NLSY. The results point to a substantial degree of hyperbolic discounting for low and medium wage workers. The structural estimates are then used to evaluate alternative policy interventions aimed at reducing unemployment. The estimated effects of a given policy can vary by up to 40%, depending on the assumed type of time discounting. Some interventions may raise the long-run utility of hyperbolic workers, and at the same time reduce unemployment duration and lower government expenditures.

Suggested Citation

Paserman, M. Daniele, Job Search and Hyperbolic Discounting: Structural Estimation and Policy Evaluation. The Economic Journal, Vol. 118, No. 531, pp. 1418-1452, August 2008, Available at SSRN: https://ssrn.com/abstract=1227178 or http://dx.doi.org/10.1111/j.1468-0297.2008.02175.x

M. Daniele Paserman (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 588 3365 (Phone)
+972 2 581 6071 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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