Golden Eggs and Hyperbolic Discounting
| Title: | Golden Eggs and Hyperbolic Discounting |
| Author: | Laibson, David I. |
| Citation: | David Laibson. 1997. Golden eggs and hyperbolic discounting. Quarterly Journal of Economics 112(2): 443-477. |
| Full Text & Related Files: |
Laibson_GoldenEggs.pdf (330.1Kb; PDF) 
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| Abstract: | Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation in- creases liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare by providing “too much” liquidity. |
| Published Version: | http://dx.doi.org/10.1162/003355397555253 |
| Terms of Use: | This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA |
| Citable link to this page: | http://nrs.harvard.edu/urn-3:HUL.InstRepos:4481499 |
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