Durable goods as commitment devices under quasi-hyperbolic discounting

Jingoo Kang and Minwook Kang

Journal of Mathematical Economics, 2022, vol. 99, issue C

Abstract: Why do some people prefer owning durable goods instead of renting? We show that owning durable goods provides a commitment incentive for a consumer with time inconsistent preferences and helps maximize her utility. Previous research on time inconsistent preferences has focused on the role of financial assets as a commitment device and showed that illiquid financial assets cannot play such a commitment role. In this paper, we incorporate durable goods into the quasi-hyperbolic discounting model and show that the price of durable goods reflects a positive commitment premium. Our finding of the commitment incentive in durable goods provides a possible explanation of why owning rather than renting durable goods is a better idea for consumers.

Keywords: Durable good; Commitment device; Quasi-hyperbolic discounting; Rental market; Choice flexibility (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304406821001245
Full text for ScienceDirect subscribers only

Related works:
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: https://EconPapers.repec.org/RePEc:eee:mateco:v:99:y:2022:i:c:s0304406821001245

DOI: 10.1016/j.jmateco.2021.102561

Access Statistics for this article

Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii

More articles in Journal of Mathematical Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().