Consume Now or Later? Time Inconsistency, Collective Choice and Revealed Preference
32 Pages Posted: 9 Oct 2012
Date Written: August 1, 2012
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
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