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A Flexible Test for Present Bias and Time Preferences Using Land-Lease Contracts

Pieter Gautier () and Aico van Vuuren ()

No 5821, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: When agents have present bias, they discount more between now and the next period than between period t (> 1) and t + 1. How fast the future discount rate (evaluated today) decays is an empirical question. We show that the discount function can be non-parametrically identified with contracts that specify payments that take place at various points in time in the future and which are traded and priced in a competitive market. We use a unique land lease-contract data set for Amsterdam, which has the above properties, to test for present bias in a flexible way. We find no evidence for present bias in this market. Even though we allow for a general-hyperbolic specification (which has exponential discounting as a special case), our estimates converge to an exponential discount function with a corresponding discount rate (in our baseline specification) of 8 %.

Keywords: present bias; hyperbolic discounting; discount rate; hedonic estimation (search for similar items in EconPapers)
JEL-codes: C52 D03 D12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe
Date: 2011-06
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Related works:
Working Paper: A Flexible Test for Present Bias and Time Preferences Using Land-Lease Contracts (2011) Downloads
Working Paper: A Flexible Test for Present Bias and Time Preferences using Land-Lease Contracts (2011) Downloads
Working Paper: A Flexible Test for Present Bias and Time Preferences using Land-Lease Contracts (2011) Downloads
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