Hyperbolic Discounting and Uniform Savings Floor

Benjamin Malin

No 04-034, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: I develop a general equilibrium model populated by agents with varying degrees of hyperbolic discounting who vote for a uniform savings floor. Although partial equilibrium intuition suggests that all individuals will prefer to have some constraint on their consumption/savings decision, I find that even the smallest amount of heterogeneity in preferences leads to very large differences in preferred policies. In fact, policy preferences are extreme: each individual either prefers having no floor imposed on the population or having a floor so high that it eliminates all borrowing and lending. I demonstrate that both endogenously determined prices and dynamically inconsistent preferences are necessary for this result. Finally, I consider how the equilibrium savings floor depends on the average amount of self-control in the population.

Keywords: Hyperbolic Discounting; General Equilibrium; Commitment; Voting (search for similar items in EconPapers)
JEL-codes: E21 H0 H4 H55 (search for similar items in EconPapers)
Date: 2005-08
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Related works:
Journal Article: Hyperbolic discounting and uniform savings floors (2008)
Working Paper: Hyperbolic discounting and uniform savings floors (2007)
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