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Present-Biased Preferences and Publicly Provided Private Goods

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  • Thomas Aronsson
  • David Granlund

Abstract

This paper analyzes the welfare effects of a publicly provided private good with long-term consequences for individual well-being, in an economy where consumers have present-biased preferences due to quasihyperbolic discounting. The analysis is based on a two-type model with asymmetric information between the government and the private sector, and each consumer lives for three periods. We present formal conditions under which public provision to the young and the middle-aged generation, respectively, leads to higher welfare. Our results show that quasihyperbolic discounting provides a strong incentive for public provision to the young generation - especially if the consumers are naive (as opposed to sophisticated).

Suggested Citation

  • Thomas Aronsson & David Granlund, 2014. "Present-Biased Preferences and Publicly Provided Private Goods," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(2), pages 169-199, June.
    • Handle: RePEc:mhr:finarc:urn:ici:0015-2218(201406)70:2_169:ppappp_2.0.tx_2-9
    DOI: 10.1628/001522108X681333
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    References listed on IDEAS

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    1. Aronsson, Thomas & Sjögren, Tomas, 2009. "Quasi-Hyperbolic Discounting and Mixed Taxation," Umeå Economic Studies 778, Umeå University, Department of Economics.
    2. Boadway, Robin & Marchand, Maurice, 1995. "The Use of Public Expenditures for Redistributive Purposes," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 45-59, January.
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    6. Brett, Craig, 1998. "A note on nonlinear taxation in an overlapping generations model," MPRA Paper 8776, University Library of Munich, Germany.
    7. Thomas Aronsson & Mikael Markström & Tomas Sjögren, 2005. "Public Provision of Private Goods and Equilibrium Unemployment," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(3), pages 353-367, November.
    8. Aronsson, Thomas & Thunström, Linda, 2008. "A note on optimal paternalism and health capital subsidies," Economics Letters, Elsevier, vol. 101(3), pages 241-242, December.
    9. Craig Brett & John A. Weymark, 2019. "Optimal nonlinear taxation of income and savings without commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(1), pages 5-43, February.
    10. Thomas Aronsson & Tomas Sjögren & Torbjörn Dalin, 2009. "Optimal taxation and redistribution in an OLG model with unemployment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(2), pages 198-218, April.
    11. Thomas Aronsson & Olof Johansson‐Stenman, 2010. "Positional Concerns In An Olg Model: Optimal Labor And Capital Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1071-1095, November.
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    14. Aronsson, Thomas & Granlund, David, 2011. "Public goods and optimal paternalism under present-biased preferences," Economics Letters, Elsevier, vol. 113(1), pages 54-57, October.
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    Cited by:

    1. Aronsson, Thomas & Sjögren, Tomas, 2016. "Quasi-hyperbolic discounting, paternalism and optimal mixed taxation," Mathematical Social Sciences, Elsevier, vol. 84(C), pages 24-36.
    2. Marcelo Arbex & Flavia Chein & Isabela Furtado & Enlinson Mattos, 2017. "Publicly Provided Private Goods and Informal Labor Supply," Working Papers 1710, University of Windsor, Department of Economics.

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    More about this item

    Keywords

    public provision of private goods; health care; hyperbolic discounting; intertemporal model; asymmetric information;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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