Can Temptation Explain Housing Choices in Later Life?
32 Pages Posted: 24 Jul 2013
Date Written: May 26, 2013
We use individual life-history data on twelve European countries to investigate the role of temptation in explaining the decision to become home-owners relatively late in life. The model we consider takes into account the standard motives for saving and investing in illiquid assets such as housing and individual retirement accounts, but recognizes that illiquid assets may be used by individuals who find it hard to procrastinate current consumption to control the temptation linked to having plenty of cash on hand. The evidence we produce is consistent with the notion that tempted individuals first resort to illiquid financial assets to control temptation, but as retirement age approaches they are more likely to use home-ownership as a commitment device.
Keywords: Temptation, housing, duration models, bivariate mixed proportional hazard
JEL Classification: D12, D14, G11
Suggested Citation: Suggested Citation