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A theory of personal budgeting

Simone Galperti ()
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Simone Galperti: Department of Economics, University California, San Diego

Theoretical Economics, 2019, vol. 14, issue 1

Abstract: Prominent research argues that consumers often use personal budgets to manage self-control problems. This paper analyzes the link between budgeting and self-control problems in consumption-saving decisions. It shows that the use of good-specific budgets depends on the combination of a demand for commitment and the demand for flexibility resulting from uncertainty about intratemporal trade-offs between goods. It explains the subtle mechanism which renders budgets useful commitments, their interaction with minimum-savings rules (another widely-studied form of commitment), and how budgeting depends on the intensity of self-control problems. This theory matches several empirical findings on personal budgeting.

Keywords: Budget; minimum-savings rule; commitment; flexibility; intratemporal trade-off; uncertainty; present bias (search for similar items in EconPapers)
JEL-codes: D23 D82 D86 D91 E62 G31 (search for similar items in EconPapers)
Date: 2019-01-30
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