Consume now or later? Time inconsistency, collective choice and revealed preference

Abi Adams, Laurens Cherchye, Bram De Rock and Ewout Verriest

No W14/08, IFS Working Papers from Institute for Fiscal Studies

Abstract: In this paper, we develop a revealed preference methodology that allows us to explore whether time inconsistencies in household choice are the product of individual preference nonstationarities or the result of individual heterogeneity and renegotiation within the collective unit. An empirical application to household-level microdata highlights that an explicit recognition of the collective nature of household choice enables the vast majority of observed behaviour to be rationalised by a theory that assumes preference stationarity at the individual level. The methodology created in this paper also facilitates the recovery of theory-consistent discount rates for each individual within a particular household under study. We find that couples characterised by lower divergence in spousal discount rates are older, which we take as an indication of experiencing higher match quality.

Date: 2014-05-12
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Related works:
Journal Article: Consume Now or Later? Time Inconsistency, Collective Choice, and Revealed Preference (2014)
Working Paper: Consume now or later? Time inconsistency, collective choice and revealed preference (2012)
Working Paper: Consume Now or Later? Time Inconsistency, Collective Choice and Revealed Preference (2012)
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