Time-Consistent Individuals, Time-Inconsistent Households
72 Pages Posted: 24 Aug 2011 Last revised: 20 Nov 2016
Date Written: September 1, 2016
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: Suggested Citation