Consume Now or Later? Time Inconsistency, Collective Choice and Revealed Preference

32 Pages Posted: 9 Oct 2012

See all articles by Abi Adams-Prassl

Abi Adams-Prassl

University of Oxford - Department of Economics

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Bram De Rock

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Ewout Verriest

Catholic University of Leuven (KUL)-Kortrijk. Subfaculty of Economics and Business

Date Written: August 1, 2012

Abstract

This paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit. An empirical application to household-level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behavior to be rationalized by theory that assumes preference stationarity at the individual level. For our particular short panel data set, simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98.4% of the sample to be rationalized by a model that assumes exponential discounting at the individual level. We also …find that couples characterized by lower divergence in spousal discount rates are older, more likely to have children and wealthier, which we take as indications of experiencing higher match quality.

Keywords: time consistency, collective choice, full e¢ ciency, renegotiation, revealed preference

JEL Classification: D11, D12, D13, C14

Suggested Citation

Adams-Prassl, Abi and Cherchye, Laurens and De Rock, Bram and Verriest, Ewout, Consume Now or Later? Time Inconsistency, Collective Choice and Revealed Preference (August 1, 2012). Available at SSRN: https://ssrn.com/abstract=2159130 or http://dx.doi.org/10.2139/ssrn.2159130

Abi Adams-Prassl

University of Oxford - Department of Economics ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Laurens Cherchye (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Bram De Rock

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Av. F. D. Roosevelt, 50
CP 114
Brussels, B-1050
Belgium

Ewout Verriest

Catholic University of Leuven (KUL)-Kortrijk. Subfaculty of Economics and Business ( email )

Etienne Sabbelaan 53
Kortrijk, B-8500
Belgium

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