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Individual and Social Discounting

Paper Session

Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM

Marriott Philadelphia Downtown, Meeting Room 410
Hosted By: Econometric Society
  • Chair: Collin Raymond, Amherst College

Backward Discounting

Debraj Ray
,
New York University
Nikhil Vellodi
,
New York University
Ruqu Wang
,
Queen's University

Abstract

We study a model in which lifetime individual utility is derived from both present and past consumption streams. Each of these streams is discounted, the former forward in the usual way,
the latter backward. We further assume that an individual at date t evaluates consumption programs according to some weighted average of his own felicity (as perceived at date t) and that of "future selves" at dates greater than t. This simple formulation allows agents to partially anticipate future regret in current decisions, and generates a set of novel testable implications in line with empirical evidence. The model is used to capture the notion of parental influence and investigate its impact on equilibrium savings. The paper also examines other applications of ``backward discounting."

Present Bias

Anujit Chakraborty
,
University of California-Davis

Abstract

Present bias is the inclination to prefer a smaller present reward to a larger later reward, but reversing this preference when both rewards are equally delayed. This paper investigates and characterizes the most general class of present-biased temporal preferences. We show that any present-biased preference has a max-min representation, which can be cognitively interpreted as if the decision maker considers the most conservative present equivalents in the face of uncertainty about future tastes. We also discuss empirical anomalies that temporal models like beta-delta or hyperbolic discounting cannot account for, but the proposed general representation can accommodate.

Social Discounting and Intergenerational Pareto

TangRen Feng
,
University of Michigan
Shaowei Ke
,
University of Michigan

Abstract

The most critical issue in evaluating policies and projects that affect generations of individuals is the choice of social discount rate. This paper shows that there exist social discount rates such that the planner can simultaneously be (i) an exponential discounting expected utility maximizer; (ii) intergenerationally Pareto---i.e., if all individuals from all generations prefer one policy/project to another, the planner agrees; and (iii) strongly non-dictatorial---i.e., no individual from any generation is ignored. Moreover, to satisfy (i)--(iii), if the time horizon is long enough, it is generically sufficient and necessary for social discounting to be more patient than the most patient individual's long-run discounting, independent of the social risk attitude.
Discussant(s)
Simone Galperti
,
University of California-San Diego
Yusufcan Masatlioglu
,
University of Maryland
Christian Gollier
,
University of Toulouse
JEL Classifications
  • D90 - General
  • D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement