Publication: Instantaneous Gratification
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Date
2012
Authors
Published Version
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Volume Title
Publisher
Oxford University Press
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Citation
Harris, Christopher and Dan Laibson. Forthcoming. Instantaneous gratification. Quarterly Journal of Economics.
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Abstract
Extending Barro (1999) and Luttmer & Mariotti (2003), we introduce a new model of time preferences: the instantaneous-gratification model. This model applies tractably to a much wider range of settings than existing models. It applies to both complete- and incomplete-market settings and it works with generic utility functions. It works in settings with linear policy rules and in settings in which equilibrium cannot be supported by linear rules. The instantaneous-gratification model also generates a unique equilibrium, even in infinite-horizon applications, thereby resolving the multiplicity problem hitherto associated with dynamically inconsistent models. Finally, it simultaneously features a single welfare criterion and a behavioral tendency towards overconsumption
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Keywords
quasi-hyberolic discounting, time preference, dynamic inconsistency, continuous time, consumption, savings, buffer stock, Euler relation, dynamic games, altruistic growth
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