Time-Consistent Individuals, Time-Inconsistent Households

72 Pages Posted: 24 Aug 2011 Last revised: 20 Nov 2016

See all articles by Andrew Hertzberg

Andrew Hertzberg

Federal Reserve Bank of Philadelphia

Date Written: September 1, 2016

Abstract

I present a model of consumption and savings for multi-person households in which members are imperfectly altruistic and share wealth. I show that, despite having standard exponential time preferences, the household is time-inconsistent: members save too little and overspend on private consumption goods. Access to private illiquid durable goods can exacerbate overconsumption by providing a way for members to lock-up wealth from each other. The household remains time-inconsistent, even when it is possible for members to save separately, whenever intra-household relative-wealth shocks create the possibility that one member will choose to transfer wealth to the other in the future.

JEL Classification: D13, H31, D91

Suggested Citation

Hertzberg, Andrew, Time-Consistent Individuals, Time-Inconsistent Households (September 1, 2016). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1915518 or http://dx.doi.org/10.2139/ssrn.1915518

Andrew Hertzberg (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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