Present-Biased Preferences and Publicly Provided Private Goods

Thomas Aronsson and David Granlund

FinanzArchiv: Public Finance Analysis, 2014, vol. 70, issue 2, 169-199

Abstract: This paper analyzes the welfare effects of a publicly provided private good with long-term consequences for individual well-being, in an economy where consumers have present-biased preferences due to quasihyperbolic discounting. The analysis is based on a two-type model with asymmetric information between the government and the private sector, and each consumer lives for three periods. We present formal conditions under which public provision to the young and the middle-aged generation, respectively, leads to higher welfare. Our results show that quasihyperbolic discounting provides a strong incentive for public provision to the young generation - especially if the consumers are naive (as opposed to sophisticated).

Keywords: public provision of private goods; health care; hyperbolic discounting; intertemporal model; asymmetric information (search for similar items in EconPapers)
JEL-codes: D03 D61 H42 I18 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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DOI: 10.1628/001522108X681333

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