Hyperbolic discounting and uniform savings floors

Benjamin Andrew Malin ()

Journal of Public Economics, 2008, vol. 92, issue 10-11, pages 1986-2002

Abstract: Previous research suggests that, in partial equilibrium, individuals whose decision-making exhibits a present-bias - such as hyperbolic discounters who tend to over-consume - will be in favor of having a floor imposed on their savings. In this paper, I show it is quite difficult for the introduction of a savings floor to be Pareto improving in general equilibrium. Indeed, a necessary condition for the floor to be Pareto improving is that it is high enough to be binding for all individuals. Even in that case, because the equilibrium interest rate adjusts with the level of the savings floor, some individuals may prefer to commit to a future time path of consumption by facing a high interest rate (and no floor) rather than a high floor. An essential insight for understanding this result is to note that even those with little self-control (in an absolute sense) will choose to save a lot when the interest rate is high enough.

Keywords: Hyperbolic; discounting; General; equilibrium; Commitment (search for similar items in EconPapers)
Date: 2008

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V76 ... e9c7fda73db9092d3af1
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Hyperbolic discounting and uniform savings floors (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:pubeco:v:92:y:2008:i:10-11:p:1986-2002

Access Statistics for this article

Journal of Public Economics is edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Series data maintained by Heidi Boesdal ().