Incentivizing self-control effort

Laura Abrardi and Carlo Cambini

Journal of Economic Behavior & Organization, 2019, vol. 164, issue C, 13-30

Abstract: We analyze the determinants of the incentives that a paternalistic social planner should provide to improve the behavior of time-inconsistent consumers. We focus on the specific case in which consumers can reduce their future consumption by exerting self-control effort in non-observable and non-contractible activities. For example, they can reduce their future healthcare costs by practicing physical exercise. Differently from the results obtained by the sin taxes theory, we find that incentives that address the under-exertion of effort by present-biased consumers are always socially costly even when consumers are homogeneous. Moreover, we show that incentives are first increasing and then decreasing in the level of time-inconsistency, due to the ineffectiveness of incentive policies. Incentives are also affected by the degree of naivety in a non-monotonic way.

Keywords: Optimal paternalism; Time-inconsistency; Sin taxes; Present-bias (search for similar items in EconPapers)
JEL-codes: D11 D91 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:164:y:2019:i:c:p:13-30

DOI: 10.1016/j.jebo.2019.05.030

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