Identification of Time-Inconsistent Models: The Case of Insecticide Treated Nets

78 Pages Posted: 26 May 2020

See all articles by Aprajit Mahajan

Aprajit Mahajan

Stanford University; University of California, Berkeley - Department of Agricultural & Resource Economics; National Bureau of Economic Research (NBER)

Christian Michel

Universitat Pompeu Fabra

Alessandro Tarozzi

Universitat Pompeu Fabra - Department of Economics and Business

Date Written: May 2020

Abstract

Time-inconsistency may play a central role in explaining inter-temporal behavior, particularly among poor households. However, little is known about the distribution of time-inconsistent agents, and time-preference parameters are typically not identified in standard dynamic choice models. We formulate a dynamic discrete choice model in an unobservedly heterogeneous population of possibly time-inconsistent agents. We provide conditions under which all population type probabilities and preferences for both time-consistent and sophisticated agents are point-identified and sharp set-identification results for naïve and partially sophisticated agents. Estimating the model using data from a health intervention providing insecticide treated nets (ITNs) in rural Orissa, India, we find that time-inconsistent agents account for almost 80 percent of our sample and that sophisticated and naïve agents are considerably present-biased. Counterfactuals show that the under-investment in ITNs attributable to present-bias leads to substantial costs that are about six times the price of an ITN.

Suggested Citation

Mahajan, Aprajit and Michel, Christian and Tarozzi, Alessandro, Identification of Time-Inconsistent Models: The Case of Insecticide Treated Nets (May 2020). NBER Working Paper No. w27198. Available at SSRN: https://ssrn.com/abstract=3609650

Aprajit Mahajan (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christian Michel

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Alessandro Tarozzi

Universitat Pompeu Fabra - Department of Economics and Business ( email )

Barcelona
Spain

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