Income Smoothing and Self-Control: The Case of Schoolteachers

Thomas Mayer and Thomas Russell

Economic Inquiry, 2005, vol. 43, issue 4, 823-830

Abstract: Approximately one-half of California's Unified School Districts give teachers a choice of receiving their annual salaries in 10 or 12 monthly payments. Intertemporal utility maximization à la Irving Fisher suggests that they should choose 10 payments and earn interest on their savings. But about 50% of the teachers choose 12 installments, even though when summed over a reasonable period the forgone interest can be considerable. This behavior can be explained by the cost of exercising self-control and by Laibson's model of hyperbolic discounting. A survey of teachers supports this interpretation. (JEL D91, D12) Copyright 2005, Oxford University Press.

JEL-codes: D12 D91 (search for similar items in EconPapers)
Date: 2005
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