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Consume Now or Later? Time Inconsistency, Collective Choice and Revealed Preference

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  • Abi Adams
Abstract
This paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit. An empirical application to household-level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level. For our particular short panel data set, simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98.4% of the sample to be rationalised by a model that assumes exponential discounting at the individual level. We also find that couples characterized by lower divergece in spousal discount rates are older, more likely to have children and wealthier, which we take as indications of experiencing higher match quality.

Suggested Citation

  • Abi Adams, 2012. "Consume Now or Later? Time Inconsistency, Collective Choice and Revealed Preference," Economics Series Working Papers 625, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:625
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    More about this item

    Keywords

    Time consistency; Collective choice; Full efficiency; Renegotiation; Revealed preference;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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