IDEAS home Printed from https://ideas.repec.org/p/nwu/cmsems/1520.html
   My bibliography  Save this paper

Commitment, Flexibility and Optimal Screening of Time Inconsistency

Author

Listed:
  • Simone Galberti

Abstract

I study the optimal supply of exible commitment devices to people who value both commitment and exibility, and whose preferences exhibit varying degrees of time incon- sistency. I nd that, if time inconsistency is observable, then both a monopolist and a planner supply devices that enable each person to commit to the e¢ cient level of exi- bility. If instead time inconsistency is unobservable, then both face a screening problem. To screen a more time-inconsistent from a less time-inconsistent person, the monopolist and (possibly) the planner ine¢ ciently curtail the exibility of the device tailored to the rst person, and include unused options in the device tailored to the second person. These results have important policy implications for designing special savings devices that use tax incentives to help time-inconsistent people adequately save for retirement.

Suggested Citation

  • Simone Galberti, 2012. "Commitment, Flexibility and Optimal Screening of Time Inconsistency," Discussion Papers 1520, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1520
    as

    Download full text from publisher

    File URL: http://www.kellogg.northwestern.edu/research/math/papers/1520R.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ted O'Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 121-160.
    2. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives for Procrastinators," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 769-816.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johannes Johnen, 2019. "Automatic‐renewal contracts with heterogeneous consumer inertia," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(4), pages 765-786, November.
    2. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    3. O'Donoghue, Ted & Rabin, Matthew, 2008. "Procrastination on long-term projects," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 161-175, May.
    4. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
    5. Akin, Zafer, 2012. "Intertemporal decision making with present biased preferences," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 30-47.
    6. Altınok, Ahmet & Yılmaz, Murat, 2018. "Dynamic voluntary contribution to a public project under time inconsistency," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 114-140.
    7. Tyson, Christopher J., 2008. "Management of a capital stock by Strotz's naive planner," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2214-2239, July.
    8. D.Dragone, 2005. "Incoerenza Dinamica ed Autocontrollo: Proposta per un'Analisi Interdisciplinare," Working Papers 549, Dipartimento Scienze Economiche, Universita' di Bologna.
    9. Chen‐Nan Liao & Ying‐Ju Chen, 2021. "Design of Long‐Term Conditional Cash Transfer Program to Encourage Healthy Habits," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 3987-4003, November.
    10. Rodrigue Mendez, 2012. "Predatory Lending," Working Papers hal-00991948, HAL.
    11. Jianjun Miao, 2008. "Option exercise with temptation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(3), pages 473-501, March.
    12. Nur Ata NurcanAlena Bicakova, 2010. "Self-control and debt: evidence from data on credit counselling," Economics Series Working Papers 504, University of Oxford, Department of Economics.
    13. Gilpatric, Scott M., 2008. "Present-biased preferences, self-awareness and shirking," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 735-754, September.
    14. Hammond, Peter J & Zank, Horst, 2013. "Rationality and Dynamic Consistency under Risk and Uncertainty," The Warwick Economics Research Paper Series (TWERPS) 1033, University of Warwick, Department of Economics.
    15. Yılmaz, Murat, 2015. "Contracting with a naïve time-inconsistent agent: To exploit or not to exploit?," Mathematical Social Sciences, Elsevier, vol. 77(C), pages 46-51.
    16. Christian D. Schade & Avichai Snir, 2020. "A lab test on the decision not to decide," Business Research, Springer;German Academic Association for Business Research, vol. 13(3), pages 1253-1291, November.
    17. Grenadier, Steven R. & Wang, Neng, 2007. "Investment under uncertainty and time-inconsistent preferences," Journal of Financial Economics, Elsevier, vol. 84(1), pages 2-39, April.
    18. Maria Arvaniti & Tomas Sjögren, 2020. "Temptation in Consumption and Optimal Redistributive Taxation," CER-ETH Economics working paper series 20/339, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    19. Kfir Eliaz & Ran Spiegler, 2006. "Contracting with Diversely Naive Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 689-714.
    20. Takeharu Sogo, 2019. "Competition among procrastinators," Theory and Decision, Springer, vol. 86(3), pages 325-337, May.

    More about this item

    Keywords

    Time inconsistency; self-control; commitment; exibility; contracts; screen- ing; unused items. JEL Classification Numbers:D42; D62; D82; D86; D91; G21; G23;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:1520. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fran Walker (email available below). General contact details of provider: https://edirc.repec.org/data/cmnwuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.