Identification of Time-Inconsistent Models: The Case of Insecticide Treated Nets

Aprajit Mahajan, Christian Michel and Alessandro Tarozzi

No 17888, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Time-inconsistency may play a central role in explaining inter-temporal behavior, particularly among poor households. However, little is known about the distribution of time-inconsistent agents, and time-preference parameters are typically not identified in standard dynamic choice models. We formulate a dynamic discrete choice model in an unobservedly heterogeneous population of possibly time-inconsistent agents. We provide conditions under which all population type probabilities and preferences for both time-consistent and sophisticated agents are point-identified and sharp set-identification results for \naive and partially sophisticated agents. Estimating the model using data from a health intervention providing insecticide treated nets (ITNs) in rural Orissa, India, we find that a little over two-thirds of our sample comprises time-inconsistent agents and that both sophisticated and naiive agents are considerably present-biased. Counterfactuals show that the under-investment in ITNs attributable to present-bias leads to substantial costs that are about five times the price of an ITN.

Keywords: Time inconsistency; Partial identification; Mixture model; Expectations; Bednets; Dynamic discrete choice (search for similar items in EconPapers)
JEL-codes: D9 I1 I3 (search for similar items in EconPapers)
Date: 2023-02
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Working Paper: Identification of Time-Inconsistent Models: The Case of Insecticide Treated Nets (2020)
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