Present-Biased Individuals, Optimal Paternalism, and Transfers in Kind

Jes Winther Hansen
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Jes Winther Hansen: Department of Economics, University of Denmark

No 05-11, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: Present-biased preferences cause distortions in consumption that can motivate the use of paternalistic in-kind transfers. Empirically, goods are consumed to different degrees when consumption outlay changes. Economists distinguish between necessary goods and luxury goods. A present-biased individual has an intertemporal distortion of consumption toward the present, which in turn distorts present consumption toward luxury goods. In-kind transfers of necessary goods, such as food stamps, can alleviate the intertemporal distortion and make present-biased transfer recipients better off. Further, transfers in kind are asymmetrical in the sense that they can target present-biased recipients without affecting fully rational recipients.

Keywords: in-kind transfers; time preference (search for similar items in EconPapers)
JEL-codes: D91 H21 H42 I38 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-09
New Economics Papers: this item is included in nep-pbe
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