Income Smoothing and Self Control: The Case of Schoolteachers

Thomas Mayer and Thomas Russell
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Thomas Russell: Department of Economics, University of California Davis

No 281, Working Papers from University of California, Davis, Department of Economics

Abstract: Close to half the California school districts let teachers choose whether to receive their salaries ten monthly payments or in twelve. Fisherine intertemporal maximization implies that they should choose ten payments and earn interest on their savings for their summer. But about half choose twelve installments , even though when summed over a reasonable period the foregone interest is considerable. This 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.

Keywords: Self Control; Intertemporal Utility Maximization (search for similar items in EconPapers)
JEL-codes: D12 D91 (search for similar items in EconPapers)
Pages: 20
Date: 2003-02-02
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Related works:
Journal Article: Income Smoothing and Self-Control: The Case of Schoolteachers (2005)
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