Collective Self-Control

36 Pages Posted: 31 Jul 2012

See all articles by Alessandro Lizzeri

Alessandro Lizzeri

Princeton University - Department of Economics

Leeat Yariv

Princeton University

Multiple version iconThere are 2 versions of this paper

Date Written: May 7, 2012

Abstract

Behavioral economics presents a "paternalistic" rationale for intervention by a benevolent government. This paper studies the desirability of various forms of collective action when government decisions are determined via the political process in response to votes by time inconsistent voters. We consider an economy where the only "distortion" is the agents' time inconsistency. We first examine a fully decentralized economy where agents can make private "investments" in a commitment technology. We show that the demand for commitment is non monotone with the degree of time inconsistency, with agents with intermediate intensity of present bias exhibiting the highest value of commitment. We then study several forms of collective action. If only commitment decisions are centralized, commitment investment is often more moderate than if all decisions are centralized. Welfare consequences of full centralization (of both commitment and consumption decisions) are ambiguous and depend on the distribution of time inconstistency in the population.

Keywords: Time Inconsistency, Political Economy, Nudge Policies

JEL Classification: D02, D03, D72, H4

Suggested Citation

Lizzeri, Alessandro and Yariv, Leeat, Collective Self-Control (May 7, 2012). Available at SSRN: https://ssrn.com/abstract=2120893 or http://dx.doi.org/10.2139/ssrn.2120893

Alessandro Lizzeri

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
08544 (Fax)

Leeat Yariv (Contact Author)

Princeton University ( email )

Princeton, NJ 08544-1021
United States

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