Resolving Intertemporal Conflicts: Economics vs Politics

Antony Millner and Geoffrey Heal

No 20705, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Intertemporal conflicts occur when a group of agents with heterogeneous time preferences must make a collective decision about how to manage a common asset. How should this be done? We examine two methods: an 'Economics' approach that seeks to implement efficient allocations, and a 'Politics' approach in which agents vote over consumption plans. We compare these methods by varying two characteristics of the problem: are agents' preferences known or are they hidden information, and can they commit to intertemporal collective plans or not? We show that if commitment is possible the Economics approach always Pareto dominates the Politics approach, in both full and hidden information scenarios. By contrast, without commitment the group may be better off if the Politics approach is adopted. We investigate when Politics trumps Economics analytically, and then apply our model to a survey of economists' views on the appropriate pure rate of time preference for project appraisal. For a wide range of model parameters, and under both full and hidden information, the Politics approach is supported by a majority of agents, and leads to higher group welfare.

JEL-codes: D9 H43 Q2 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-cdm and nep-pol
Note: EEE PE POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Resolving intertemporal conflicts: Economics vs. Politics (2014)
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