time orientation and asset prices we analyze a general equilibrium asset pricing model where a small subset of the consumers investors have a short run urge to save that is their attitude toward consumption in the long run is a standard one f they do place zero weight on consumption far enough out in the future f but their short run effective rates of discount may be negative our model which is an elaboration on the framework proposed by faruk gul and wolfgang pesendorfer does not feature time inconsistencies thus we view consumers as fully rational but subject to specific internal frictions in the form of temptation and self control problems the model nests the mehra prescott model and we use it as a way of interpreting the wealth and asset pricing data some aspects of these data we argue can possibly be better understood using our model than the standard one r 2002 published by elsevier science b v

an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

temptation and social security in a dynastic framework abstract we investigate welfare and aggregate implications of a pay as you go payg social security system in a dynastic framework in which individuals have self control problems the presence of self control problems induces individuals to save less because of their urge for temptation towards current consumption individuals efforts to balance between the short term urge for temptation and the long term commitment for consumption smoothing result in self control costs in this environment payg social security works as a self control cost reducing device in contrast the presence of altruism induces individuals to save more this in turn mitigates the adverse effects of self control problems and payg social security on savings but magnifies the self control costs we find that in our environment the adverse welfare effects of a payg system are further mitigated relative to the environments that incorporate altruism and self control issues separately however the level of mitigation is quite modest

induced innovations and climate change policy with the recent progress in bonn and marrakech on the details required for implementing the kyoto protocol entry into force in 2003 is now a possibility this paper assesses the potential macroeconomic impacts of the kyoto protocol given the recent negotiated developments in addition given the recent attempts in the literature to model endogenous technical change in general equilibrium models a new methodology for incorporating the induced innovations hypothesis into a general equilibrium model is described and implemented in line with previous work it is found that incorporation of the hypothesis reduces abatement costs

a new year a new you within individual variation in food purchases abstract we document that within individual variation in food choices is substantial and has potentially important consequences for nutrition and hence well being we develop an approach that allows us to study the determinants of this within individual variation within an economic framework and allow for across individual preference heterogeneity we show that around one fifth of within individual fluctuations in diet quality is explained by standard economic variables prices and budgets along with advertising and weather the residual fluctuations are important and are larger for lower income and younger people and individuals who state they are impulsive we propose a two selves model of food purchase behavior to structurally interpret these empirical patterns we use nonparametric revealed preference techniques to show that this model rationalizes our food purchase data

induced innovation in american agiculture a reconsideration this paper investigates the role of induced innovation in the development of american agriculture from 1880 to 1980 the induced innovation hypothesis most closely associated with the work of hayami and ruttan argues that successful economies develop technologies in accordance with market price signals to loosen constraints on growth imposed by factor scarcities our analysis employing new state and regional level data fails to find support for hayami and ruttan s hypothesis this paper suggests that many of the fundamental generalizations about american agricultural development need to be reconsidered and redirects attention to the role of settlement changing crop patterns and biological investments in explaining changes in factor utilization in american agriculture

the optimal level of social security benefits the optimal level of social security benefits depends on balancing the protection that these benefits offer to those who lack the foresight to provide for their own old age against the welfare costs of distorting economic behavior the primary such cost is the distortion in private saving the present paper derives the level of social security benefits that is optimal in three basic cases in the first section the paper derives the optimal level of benefits for an economy in which all individuals do not anticipate retirement at all and therefore do no saving the second and third sections then derive optimal benefits for two different definitions of incomplete myopia

taxing capital not a bad idea after all we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic uninsurable income shocks and permanent productivity difierences of households the optimal capital income tax rate is signiflcantly positive at 36 percent the optimal progressive labor income tax is roughly a at tax of 23 percent with a deduction of 7 200 relative to average household income of 42 000 the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system jel e62 h21 h24

labor supply and the optimality of social security abstract traditional economic theory predicts that an unfunded public pension system can be justified on the basis of its ability to provide intergenerational transfers and also for its ability to provide partial insurance against mortality and labor income risks in this paper i demonstrate that the quantitative importance of these traditional roles depends on how the pension system distorts households labor supply decisions using a general equilibrium life cycle consumption model calibrated to the u s economy i show that these distortions can be large enough to erase much of the traditional welfare gains from social security i also find that this fact is robust within the range of labor supply elasticities usually encountered in the macroeconomic literature

unleashing animal spirits self control and overpricing in experimental asset markets one explanation for overpricing on asset markets is a lack of traders self control we implement the first experiment to address the causal relationship between self control and systematic overpricing on financial markets our setup detects some of the channels through which low individual self control could transmit into irrational exuberance in markets our data indicate a large direct effect of reduced self control on market overpricing low self control traders report stronger emotions after the market

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

time inconsistent preferences and social security in this paper we examine the role of social security in an economy populated by overlapping generations of individuals with time inconsistent preferences who face mortality risk individual income risk and borrowing constraints we find that unfunded social security lowers the capital stock output and consumption for consumers with time consistent or time inconsistent preferences however it may raise or lower welfare depending on the strength of time inconsistency

output input and productivity measurement in u s agriculture 1948 79 tornqvist theil indexes of outputs and inputs are constructed these data are used to construct indexes of productivity growth over the postwar period the productivity indexes can be derived from a flexible multioutput multifactor representation of the structure of production constrained to constant returns to scale total factor productivity grew at an average annual rate of 1 75 compared with 1 70 per year estimated by the u s department of agriculture the similar estimates of productivity growth overshadow some important differences in measurement of individual inputs the major effort in measuring agricultural productivity is undertaken by the u s department of agriculture usda an american agricultural economics association task force on measuring productivity has examined the sources and procedures used in constructing the official statistics see loomis and barton lambert barton and durost the task force recommended that the usda adopt a series of specific improvements for constructing certain inputs and use an indexing procedure that does not impose a priori restrictions on the structure of production 1 this paper presents revised indexes of outputs and inputs the data are used to construct indexes of productivity growth over the postwar period the productivity indexes can be derived from a flexible multioutput multifactor representation of the structure of production the translog transformation function constrained to constant returns to scale 2 the indexes of outputs and inputs have the same form and their ratio coincides with the estimate of productivity growth

an error correction model of induced innovation in uk agriculture cointegration techniques are applied to a model of induced innovation based on the two stage constant elasticity of substitution ces production function this approach results in direct tests of the inducement hypothesis which are applied to agricultural data for the united kingdom from 1953 to 2000 the time series properties of the variables are checked cointegration is established and an error correction model ecm constructed which attempts to separate factor substitution from technological change finally the ecm formulation is subjected to causality tests which show that the factor price ratio for chemicals and land is granger prior to the factor saving bias of technological change however long run relative prices are not causally prior to the machinery labour ratio this results from perturbations in the user cost of machinery caused by oil price shocks thus the induced innovation hypothesis iih may explain long run transformations like the mechanical and fertilizer revolutions that

causal relationships between public sector agricultural research expenditures and output allocative decisions concerning public sector agricultural research appear to be driven by both supply and politically mediated demand forces in sample granger tests along with post sample predictive tests suggest that simultaneity issues should not be ignored when modeling the research expenditure output relationship the results also provide strong evidence that the impact of research expenditures on agricultural output may persist for as long as thirty years these lags are substantially longer than those commonly used for agricultural research to date the lagged effect of output on research appears to be shorter though still between ten and twelve years in this article we analyze the empirical relationship between public sector agricultural research and agricultural output our interest in this question was spurred on two fronts first emphasis of the contemporary economic literature has shifted from an analysis of the consequences of technical change to an explanation of the observed rate and direction of inventive activity a substantial proportion of this literature has focused on appropriable technologies originating in the private sector and remained largely silent on related issues in the public sector here we analyze the dynamics of public sector research in particular publicly sponsored agricultural research in the

temptation and commitment in the laboratory temptation and self control in intertemporal choice environments are receiving increasing attention in the theoretical economics literature nevertheless there remains a scarcity of empirical evidence from controlled environments informing behavior under repeated temptations this is unfortunate in light of the fact that in many natural environments the same temptation must be repeatedly resisted this paper fills that gap by reporting data from a novel laboratory study of economic decisions under repeat temptations subjects are repeatedly offered an option with instantaneous benefit that also entails a substantial reduction to overall earnings we show that this option is tempting in the sense that a substantial fraction of our subjects incur pecuniary costs to eliminate the choice and thus commit to not choosing the tempting alternative we compare the timing and price elasticity of these commitment decisions to predictions from existing theoretical models of decision under temptation our data are broadly consistent with theory with the notable exception that commitment often occurs with delay rather than at the first opportunity moreover the timing of commitment is significantly impacted by the cost of the commitment device the patterns we report have direct implications for economic theory and are a first step toward designing mechanisms that promote prudent economic decisions under temptation

the induced innovation hypothesis and u s public agricultural research applicability of the induced innovation hypothesis that a change in relative input prices induces innovation to economize use of the increasingly expensive input hicks 1932 is examined for u s public agricultural research a reduced form test is developed using input prices from the agricultural production sector expenditures from the public research sector aimed at developing new technology to save specific agricultural inputs and variables to control for innovation marginal cost differences and nonhomotheticity unlike recent demand side studies that soundly reject the induced innovation hypothesis for agriculture support for the hypothesis is found for several input pairings through these tests of public agricultural research using state level panel data

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

eliciting temptation and self control through menu choices a lab experiment unlike present biased individuals agents who suffer self control costs as in gul and pesendorfer 2001 may choose to restrict their choice set even when they expect to resist temptation to identify these self control types i design an experiment in which the temptation was to read a story during a tedious task the identification strategy relies on a two step procedure first i measure commitment demand by eliciting subjects preferences over menus that did or did not allow access to the story i then implement preferences using a random mechanism allowing to observe subjects who faced the choice yet preferred commitment a quarter to a third of subjects can be classified as self control types according to their menu preferences when confronted with the choice virtually all of them behaved as they anticipated and resisted temptation these findings suggest that policies restricting the availability of tempting options could have larger welfare benefits than predicted by standard models of present bias

time inconsistency and welfare program participation evidence from the nlsy we empirically implement a dynamic structural model of labor supply and welfare program participation for agents with potentially time inconsistent preferences using panel data on the choices of single women with children from the nlsy 1979 we provide estimates of the degree of time inconsistency and of its influence on the welfare take up decision with these estimates we conduct counterfactual experiments to quantify the utility loss stemming from the inability to commit to future decisions and the potential utility gains from commitment mechanisms such as welfare time limits and work requirements

locus of control and savings abstract this paper analyzes the relationship between individuals locus of control and their savings behavior i e wealth accumulation savings rates and portfolio choices locus of control is a psychological concept that captures individuals beliefs about the causal relationship between their own behavior and life events we find that households with an internal reference person a main respondent who believes that he she can generally control relevant aspects of life save more in terms of levels and in some cases as a percentage of their permanent incomes although the locus of control gap in savings rates is largest among rich households the gap in wealth accumulation is particularly large for poor households finally our findings indicate that households with an internal reference person are in a better position to save in forms that are harder to access such as pension wealth than otherwise similar households with an external reference person

the cyclical and secular behaviour of the labour input comparing efficiency units and hours worked summary a monthly labour input series designed to correct for the fact that all hours worked are not of the same quality is constructed and its properties compared with unadjusted hours worked this efficiency units series is constructed from bls data on hours worked and earnings by age and sex the cyclical fluctuations displayed by the efficiency units series are smaller on average than those displayed by hours worked although the difference is not large however the secular behaviour of the series is quite different hours worked per capita displays a significant positive trend while efficiency units per capita does not

after the big bang obstacles to the emergence of the rule of law in post communist societies when russia launched mass privatization it was widely believed that it would create a powerful constituency for the rule of law that didn t happen we present a dynamic equilibrium model of the political demand for the rule of law and show that beneficiaries of mass privatization may fail to demand the rule of law even if it is the pareto efficient rule of the game the reason is that uncertainty about the legal regime can lead to asset stripping and stripping can give agents an interest in prolonging the absence of the rule of law this abstract was borrowed from another version of this item

quasi hyperbolic discounting and retirement abstract some people have self control problems regularly this paper adds endogenous retirement to laibson s quasi hyperbolic discounting savings model quarterly journal of economics 112 1997 443 477 earlier selves think that the deciding self tends to retire too early and may save less to induce later retirement still earlier selves may think the pre retirement self does this too much saving more to induce early retirement the consumption pattern may be different from that with exponential discounting other observational non equivalence includes the impact of changing mandatory retirement rules or work incentives on savings and a possibly negative marginal propensity to consume out of increased future earnings naive agents are briefly considered

dynamic consistency and regret abstract individuals often report that they regret not having saved more for retirement this fact raises concerns about the financial security of retirees and about the adequacy of traditional economic models in making predictions that are consistent with regret about having saved too little for retirement we provide an overview of four discounted utility models and examine their implications for the optimal level of retirement savings all of these models exhibit dynamically consistent decision making and some also feature backward discounting in order to generate regret about past saving decisions in our preferred parameterization with both forward and backward discounting a 66 year old at retirement will consider the optimal level of retirement savings to be almost twice as large as what was actually saved even though actual saving decisions are dynamically consistent across the entire life cycle compared to a model setting with fixed retirement adding choice over retirement timing compounds the regret that individuals experience about past saving decisions

what will my account really be worth experimental evidence on how retirement income projections affect saving abstract many investment companies have begun providing their defined contribution pension participants with individualized retirement income projections the u s congress is currently considering whether to require them all to do so evidence on the potential impact is scant though a large body of economic research suggests that individuals are not currently making optimal retirement saving decisions through a field experiment we measure how provision of retirement income projections along with enrollment information affects individuals contributions to employer sponsored retirement accounts we find that the intervention boosted annual contributions to employer retirement accounts by 85 equivalent to 3 6 of the average contribution level or 0 15 of average salary relative to those who received no intervention in addition randomly assigned assumptions regarding retirement age investment returns and hypothetical contribution amounts were used to generate the projections and were found to have significant impacts on saving behavior this finding suggests that care is warranted in the design and communication of projections

the power of residual based tests for cointegration when residuals are fractionally integrated abstract we establish divergence rates of various residual based cointegration tests under fractional cointegration and show that the power of these tests is rather poor

personality and economic choices abstract there is substantial variation in individual preferences for public goods yet much of that variation remains poorly understood however simple measures of personality can help to explain economic values and choices in a systematic way in this paper we examine the effects of personality on individual economic choices over public environmental goods based on three datasets from three separate stated preference studies we use a hybrid choice econometric framework to examine the effects of personality on preferences for the status quo changes in environmental quality and costs of investing in environmental improvements we find effects that are consistent across all datasets personality a stable feature of an individual s character that is simple to measure enriches explanations of why the demand for environmental goods varies across people provides an indication of how different people are likely to react to the introduction of environmental policies and explains substantial differences in willingness to pay

social security and individual welfare precautionary saving borrowing constraints and the payroll tax this paper examines the impact of social security on national saving and individual welfare in the presence of realistic capital market imperfections market failure in the private provision of annuities and restrictions on borrowing against anticipated future wages the introduction of social security increases lifetime welfare and reduces national saving if borrowing restrictions are absent however the increase in individual welfare is reduced and in some cases eliminated when borrowing constraints are taken into consideration the substantial difference suggests the importance of reexamining the proportional payroll tax finance of social security copyright 1987 by american economic association

addiction and cue triggered decision processes we propose a model of addiction based on three premises 1 use among addicts is frequently a mistake 2 experience sensitizes an individual to environmental cues that trigger mistaken usage 3 addicts understand and manage their susceptibilities we argue that these premises find support in evidence from psychology neuroscience and clinical practice the model is tractable and generates a plausible mapping between behavior and the characteristics of the user substance and environment it accounts for a number of important patterns associated with addiction gives rise to a clear welfare standard and has novel implications for policy

a welfare analysis of social security in a dynastic framework in this article we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability contrary to previous research our results indicate that steady state welfare increases with social security for most households although by very different amounts this result is mainly due to two factors first the presence of two sided altruism significantly mitigates the crowding out effect of unfunded social security second ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security

re evaluating the role of energy efficiency standards a behavioral economics approach abstract the economic models that prescribe pigovian taxation as the first best means of reducing energy related externalities are typically based on the neoclassical model of rational consumer choice yet consumer behavior in markets for energy using durables is generally thought to be far from efficient giving rise to the concept of the energy efficiency gap this paper presents a welfare analysis of energy policies that is based on a behavioral model of temptation and self control introduced by gul and pesendorfer 23 24 we find that in the presence of temptation i pigovian taxes alone do not yield a first best outcome ii when viewed as substitutes energy efficiency standards can dominate pigovian taxes and iii a policy combining standards with a pigovian tax can yield higher social welfare than a pigovian tax alone implying that the two instruments should be viewed as complements rather than substitutes

optimal life cycle capital taxation under self control problems we study optimal taxation of savings in an economy where agents face self control problems and we allow the severity of self control to change over the life cycle we focus on quasi hyperbolic discounting with constant elasticity of inter temporal substitution utility functions and linear markov equilibria we derive explicit formulas for optimal taxes that implement the efficient commitment allocation we show analytically that if agents ability to self control increases concavely with age then savings should be subsidised and the subsidy should decrease with age we also study the quantitative effects of age dependent self control problems and find that the optimal subsidies in our environment are much larger than those implied by models with constant self control finally we compare our optimal subsidies with those implied by the 401 k plan although the subsidy levels in the two cases are of comparable magnitudes the 401 k plan implies an increasing pattern of subsidies while the optimal subsidies decrease over the life cycle

social security and self control preferences abstract we analyze the welfare effects of an unfunded social security system we do so using an overlapping generations economy wherein agents have self control preferences face mortality risk individual income risk and borrowing constraints given our specification of preferences unfunded social security helps reduce the agents temptation to consume in every period consequently the welfare costs it otherwise entails are substantially mitigated while both social security and self control when considered separately reduce welfare their combination renders this effect considerably less severe moreover if the cost of resisting temptation is very high the introduction of social security might even improve welfare

competition as a savings incentive a field experiment at a homeless shelter abstract this paper describes a randomized field experiment testing the impact of a savings competition on the behavior of homeless individuals staying at a transitional shelter when monetary prizes were offered for achieving the highest saving rates within a particular month average savings increased by 80 a 30 increase in savings rate while income and attendance at case management meetings remained unchanged however repeating the competition in the following month had no effect because responsive savers selected out of the shelter after the first month in summary while a savings competition can increase savings in the short run its effect may be limited to the intensive margin and may diminish with repetition

measuring self control problems we develop a survey instrument to measure self control problems in a sample of highly educated adults this measure relates in the manner that theory predicts to liquid wealth accumulation and personality measures yet while self control problems are typically seen as resulting in overconsumption and low wealth we identify a significant group who underconsume and thereby accumulate high levels of wealth in addition self control problems are smaller in scale for older than for younger respondents those who put money aside in retirement accounts may be delaying access to a point at which self control problems are no longer important jel d12 d14

a generalizable scale of propensity to plan the long and the short of planning for time and for money planning has pronounced effects on consumer behavior and intertemporal choice we develop a six item scale measuring individual differences in propensity to plan that can be adapted to different domains and used to compare planning across domains and time horizons adaptations tailored to planning time and money in the short run and long run each show strong evidence of reliability and validity we find that propensity to plan is moderately domain specific scale measures and actual planning measures show that for time people plan much more for the short run than the long run for money short and long run planning differ less time and money adaptations of our scale exhibit sharp differences in nomological correlates short run and long run adaptations differ less domain specific adaptations predict frequency of actual planning in their respective domains a very long run money adaptation predicts fico credit scores low planners thus face materially higher cost of credit

temptation driven behavior and taxation a quantitative analysis in a life cycle model i introduction a central research question in the dynamic fiscal policy literature during the last 30 years or so is whether under fairly general modeling choices the government should impose a positive tax on capital income in the long run the original answer to this question is negative and is due to the seminal papers by chamley 1986 and judd 1985 who established that in the context of a standard neoclassical growth model with infinitely lived individuals an optimal income tax policy entails taxing capital at confiscatory rates in the short run and setting capital income taxes equal to zero in the long run only labor income should be taxed in the long run since then several modeling choices that cast doubt on the validity of this result were identified in the literature imrohoroglu 1998 showed that the optimal capital income tax rate is strictly positive in an overlapping generations olg setting where individuals face idiosyncratic earnings risk borrowing constraints and life span uncertainty conesa kitao and krueger 2009 extended imrohoroglu 1998 by adding a labor leisure choice they demonstrated that the optimal capital income tax rate is equal to 36 and concluded that this high rate is mainly driven by the life cycle structure of the model in contrast krusell kuruscu and smith 2010 analytically showed that within a class of ramsey tax schemes the optimal capital income tax rate should be negative that is savings should be subsidized when agents have self control problems moreover in the special case where consumers succumb completely to temptation ramsey taxes deliver first best welfare outcomes and in contrast to the chamley judd result the optimum calls for a subsidy to savings however an integrated assessment of the combined effects of the relevant trade offs both along the dimension of differences in preferences and along the dimension of the scope of capital income taxation versus labor income taxation is missing from all previous studies in both social security and capital taxation literature and this paper aims to bridge the gap in the literature and contribute in this aspect to the best of our knowledge this paper is the first study that introduces temptation driven preferences in a quantitative model aiming to tackle the question on the optimal capital income tax before proceeding to specifically articulate this paper s contribution to the literature we consider critical to address a question that lies at the very core of our line of research namely why fiscal policy models with time inconsistent or self control preferences are relevant in the first place initially the literature pioneered by strotz 1956 and phelps and poliak 1968 corroborated evidence coming from both introspection and experiments that agents exhibit preference reversals as time passes different strands within this literature have suggested that these preference reversals could be induced by either time inconsistent preferences see laibson 1997 or self control preferences gul and pesendorfer 2004 time inconsistent preferences typically assume that agents have sequences of different selves each valuing consumption streams in a unique way in contrast gul and pesendorfer 2004 provide a dynamically consistent model suitable for addressing preference reversals that does not necessitate splitting up the consumer in multiple selves that is self control preferences these preferences describe an individual that in every period is tempted to consume his entire endowment when he consumes less than his endowment he incurs a disutility cost that stems from exercising self control that is self control cost optimal behavior trades off the temptation to consume vis a vis the long run self interest of the individual 1 alongside these theoretical underpinnings there is sound empirical and experimental evidence that agents suffer from self control problems

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

a nonparametric analysis of the influence of research on agricultural productivity nonparametric productivity analysis is extended by modeling technical progress as a function of public and private research expenditures results indicate that 30 year lags are required to fully capture the effects of public research expenditures on u s agricultural productivity compared to public research private research has a stronger influence on farm productivity in the short term but a smaller influence in the longer term the internal rate of return is 0 28 for public research and 0 17 for private research

measuring self control problems a structural estimation we perform a structural estimation of the preference parameters in a buffer stock consumption model augmented with temptation disutility we adopt a two stage method of simulated moments methodology to match our simulated moments with those observed in the us survey of consumer finances to identify the parameters we use liquid and quasi liquid retirement wealth holdings at different ages as target moments we find evidence of a significantly positive degree of temptation and estimates under the unrestricted model are more precise than estimates under the restricted model with no temptation overall a model with temptation preferences explains better the observed target moments

a fractional cointegration analysis of purchasing power parity a generalized notion of cointegration called fractional cointegration is introduced to examine the long run purchasing power parity ppp hypothesis by allowing deviations from equilibrium to follow a fractionally integrated process the fractional cointegration analysis can capture a wider range of mean reversion behavior than standard cointegration analyses this gain is flexibility in modeling subtle mean reverting dynamics is found to be important for a proper evaluation of long run ppp empirical results based on historical data for the 1914 1989 period show that ppp reversion exists and can be characterized by a fractionally integrated process in three out of five countries studied the results support ppp as a long run phenomenon though significant short run deviations from ppp can exist

retirement consumption insights from a survey abstract prior research has established that consumption falls significantly at retirement what is not known is the extent to which this fall is anticipated during the working years using data from a new survey we show that many working households do expect a considerable fall in consumption when they retire in fact those who are already retired report significantly smaller falls in consumption than are expected by those who are still working

equilibrium welfare and government policy with quasi geometric discounting abstract we consider a representative agent equilibrium model where the consumer has quasi geometric discounting and cannot commit to future actions we restrict attention to a parametric class for preferences and technology and solve for time consistent competitive equilibria globally and explicitly we then characterize the welfare properties of competitive equilibria and compare them to that of a planning problem the planner is a consumer representative who without commitment but in a time consistent way maximizes his or her present value utility subject to resource constraints the competitive equilibrium results in strictly higher welfare than the planning problem whenever the discounting is not geometric journal of economic literature classification numbers e21 e61 e91

productivity growth in u s agriculture a postwar perspective there has been a long standing fascination with productivity trends in u s agriculture in part this stems from the historical importance of agriculture to the economy but it also reflects economists early and continued interest in quantifying the rate of return to society s sizable investment in agricultural r d the sum of government sponsored and private sector r d investment in agriculture is estimated to have been 268 million in 1953 in that year total r d investment in the economy from all sources amounted to 5 1 billion 2 excluding defense and space related r d which accounted for approximately half of the u s total in the early fifties 3 r d expenditures dedicated to agriculture equaled approximately 10 of total u s investment in r d from all sources

social security reform with self control preferences abstract this paper analyzes a fully funded social security system under the assumption that agents face temptation issues agents are required to save through individually managed personal security accounts without and with mandatory annuitization when the analysis is restricted to crra preferences our results are congruent with the literature in indicating that the complete elimination of social security is among the reform scenarios that maximize welfare however when self control preferences are introduced and as the intensity of self control becomes progressively more severe the social security elimination scenario loses ground very rapidly in fact in the case of relatively severe temptation the elimination of social security becomes the least desirable alternative under the light of the above findings any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals

induced innovation and energy prices this paper uses u s patent data from 1970 to 1994 to study the impact of energy prices on energy efficient innovations theories of technological change have focused both on demand side factors which spur innovative activity by increasing the value of new innovations and supply side factors such as scientific advancements that make new innovations possible data on demand side factors are easily obtained but data on supply side factors that influence innovation are not readily available this paper uses patent citations as a measure of the usefulness of the existing base of scientific knowledge citations to previous patents are used to construct productivity estimates which measure the usefulness of the existing stock of knowledge to inventors in a given energy field for any given year these estimates are then combined with data on demand side factors to estimate a model of induced innovation in energy technologies the results indicate that both energy prices and the supply of knowledge have strongly significant positive effects on innovation the paper concludes with a discussion of the implication of this work for environmental policy

temptation and forward guidance abstract motivated by the extensive experimental and empirical evidence on preference reversal in consumption choices we introduce temptation with self control preferences into a new keynesian model to study the effects of forward guidance in monetary policy and the related forward guidance puzzle in our set up the representative agent faces a trade off between the temptation for immediate satisfaction liquidate wealth with his long run best smooth consumption which he manages by exerting cognitive effort or self control for higher risk aversion in temptation than in commitment utility there is discounting in the linearized euler equation the latter makes the response of current real activity to the announcement of a future policy change declining in the forward guidance horizon which then helps solving the puzzle our framework delivers testable aggregate and policy implications that distinguish it from alternative microfoundations for discounting in the euler equation previously used to solve the puzzle

consumption savings decisions with quasi geometric discounting we study the consumption savings problem of an infinitely lived rational consumer who has time inconsistent preferences in the form of quasi geometric discounting the consumer operates a weakly concave production function and must simply divide current resources into current consumption and savings there is no uncertainty a solution to the consumer s problem is a subgame perfect equilibrium of a dynamic game between the consumer s successive selves we show that this game has a continuum of equilibria in stationary markov strategies not only is the stationary point of the consumer s asset holdings indeterminate but each stationary point has a continuum of dynamic paths converging to it the savings policy rules underlying these dynamic paths are step functions

behavioral foundations of microcredit experimental and survey evidence from rural india microcredit is an innovative financial tool designed to reduce poverty and fix credit market imperfections we use experimental measures of time discounting and risk aversion for villagers in south india to highlight behavioral features of microcredit conditional on borrowing from any source women with present biased preferences are more likely than others to borrow through microcredit institutions microcredit contracts require loan repayments in regular fixed installments and they harness peer pressure to encourage discipline these innovations mirror mechanisms highlighted in behavioral approaches to saving suggesting that microcredit s popularity stems partly from modes of encouragement and self discipline absent in typical lending mechanisms

temporal stability and psychological foundations of cooperation preferences abstract a core element of economic theory is the assumption of stable preferences we test this assumption in public goods games by repeatedly eliciting cooperation preferences in a fixed subject pool over a period of five months we find that cooperation preferences are very stable at the aggregate level and to a smaller degree at the individual level allowing us to predict future behavior fairly accurately furthermore our results provide evidence on the psychological foundations of cooperation preferences the personality dimension agreeableness is closely related to both the type and the stability of cooperation preferences

time inconsistency and delayed retirement decision the french pension bonus with the increase in life expectancy and demographic shocks several public policies in the last decades aim to encourage individuals to postpone retirement one of them the pension bonus gives a

learning self control this article examines how a decision maker who is only partially aware of his temptations learns about them over time in facing temptations individuals use their experience to forecast future self control problems and choose the appropriate level of commitment i demonstrate that rational learning can be perpetually partial and need not result in full sophistication the main result of this article characterizes necessary and sufficient conditions for learning to converge to full sophistication i apply this result to a consumption savings environment in which a decision maker is tempted by present bias and establish a learning theoretic justification for assuming sophistication in this setting an individual who finds himself continuously repudiating his past plans may learn to distrust his future behavior and may do something about it strotz 1955

discounting cognition and financial awareness new evidence from a change in the military retirement system the choice given military personnel between an immediate cash payment of 30 000 or a more generous retirement pension permits us to estimate individuals personal discount rates pdrs the resulting pdrs about 7 for enlisted personnel and 2 4 3 for officers are precise and are correlated with a variety of other financial behaviors the pdr is negatively related to educational attainment and the armed forces qualification test but cognition seems to operate through channels other than being better informed better informed individuals were not always measured to be more patient jel d91 d14

annuities and individual welfare advancing annuity demand theory we present suffcient conditions for the optimality of full annuitization under market completeness that are substantially less restrictive than those used by yaari 1965 we examine demand with market incompleteness finding that positive annuitization remains optimal widely but complete annuitization does not how uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk a new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases

on the maximum likelihood cointegration procedure under a fractional equilibrium error abstract this paper examines the usual maximum likelihood procedure under fractional cointegration the lagrange multiplier test poses the ability of detecting cointegration relations when deviations from equilibrium are persistent however the estimates of the long run relations are severely biased

wealth accumulation and the propensity to plan why do similar households end up with very different levels of wealth we show that differences in the attitudes and skills with which they approach e nancial planning are a signie cant factor we use new and unique survey data to assess these differences and to measure each household s propensity to plan we show that those with a higher such propensity spend more time developing e nancial plans and that this shift in planning is associated with increased wealth these e ndings are consistent with broad psychological evidence concerning the benee cial impacts of planning on goal pursuit those with a high propensity to plan may be better able to control their spending and thereby achieve their goal of wealth accumulation we e nd direct evidence supporting this effortful self control channel in the very strong relationship we uncover between the propensity to plan and budgeting behavior

self control financial literacy the co holding puzzle we use uk survey data to analyze the puzzling co existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets which we name the co holding puzzle approximately 12 of households in our sample co hold on average 3800 of revolving consumer credit on which they incur interest charges even though they could immediately pay down all this debt using their liquid assets co holders are typically more financially literate with above average income and education in most estimates co holding is also associated with impulsive spending behavior on the part of the household our results provide empirical support to theoretical models in which households co hold as a means of managing self control problems

self control and the theory of consumption to study the behavior of agents who are susceptible to temptation in infinite horizon consumption problems under uncertainty we define and characterize dynamic self control dsc preferences dsc preferences are recursive and separable in economies with dsc agents equilibria exist but may be inefficient in such equilibria steady state consumption is independent of initial endowments and increases in self control increasing the preference for commitment while keeping self control constant increases the equity premium removing nonbinding constraints changes equilibrium allocations and prices debt contracts can be sustained even if the only feasible punishment for default is the termination of the contract

commitment savings in informal banking markets abstract i study the provision of commitment savings by informal banks to sophisticated hyperbolic discounters since a consumer is subject to temptation in the period that he signs a contract banks might exploit his desire for instant gratification even as they help him to commit for the future without banking savings decisions and welfare are not monotonic in the degree of time inconsistency consequently commitment savings will lower welfare for moderately time inconsistent agents if loan contracts are enforceable pure commitment savings will disappear this will further lower welfare if the lender is a profit maximizing bank but raise welfare if the lender is a welfare maximizing ngo finally i consider the coexistence of a bank and ngo there will be zero takeup of ngo provided commitment savings if there is competition from a moneylender but the ngo s offer will raise the agent s reservation utility thus reducing the surplus that can be extracted by the moneylender

induced innovation and marginal cost of new technology abstract lacking data on development and implementation costs for input saving technologies we develop a nonparametric procedure to estimate relative differences in marginal technology costs for technical change to be consistent with the induced innovation hypothesis we apply it to u s agriculture

personality and the marginal utility of income personality interacts with increases in household income to determine life satisfaction abstract economics implicitly assumes that the marginal utility of income is independent of an individual s personality we show that this is wrong this is the first demonstration that there are strong personality income interactions in an analysis of 13 615 individuals over 4 years we show that individuals who have high levels of conscientiousness obtain more satisfaction to their lives from increases to their household income there are strong gender differences and women that are open to experiences introverted or neurotic get lower satisfaction from household income increases our findings have important implications for the use of financial incentives to influence behavior in the future public policy may benefit from being personality specific

induced innovation in u s agriculture time series direct econometric and nonparametric tests the hypothesis of induced innovation is tested for u s agriculture using a high quality state level panel data set and three disparate testing techniques time series direct econometric and nonparametric we find little support for the hypothesis that conclusion is robust across testing techniques however as with all empirical tests of this hypothesis conducted to date ours focus only on the demand side of the hypothesis the hypothesis could have been rejected simply because the marginal cost of developing and implementing input saving technologies for the relatively expensive inputs is greater than for the relatively cheap inputs copyright 2009 oxford university press

predicting retirement savings using survey measures of exponential growth bias and present bias in a nationally representative sample we predict retirement savings using survey based elicitations of exponential growth bias egb and present bias pb we find that egb the tendency to neglect compounding and pb the tendency to value the present over the future are highly significant and economically meaningful predictors of retirement savings these relationships hold controlling for cognitive ability financial literacy and a rich set of demographic controls we address measurement error as a potential confound and explore mechanisms through which these biases may operate back of the envelope calculations suggest that eliminating egb and pb would increase retirement savings by approximately 12 percent

a non parametric analysis of productivity the case of u s and japanese manufacturing a nonparametric analysis of technology technical change and productivity is presented in the context of cost minimizing behavior a number of nonparametric tests concerning the existence and nature of technical change are applied to u s and japanese manufacturing data nonparametric measures of technical change are presented copyright 1990 by american economic association

an analysis of the source and nature of technical change the case of u s agriculture this paper proposes a methodology to investigate the process of technical change with a focus on the dynamic effects of r d investments on productivity and on the induced innovation hypothesis for both inputs and outputs the approach builds on a nonparametric representation of the underlying technology an application to u s agriculture is presented by distinguishing between private and public r d investments the analysis provides useful insights into the source and the dynamic nature of technical progress

happiness and time preference the effect of positive affect in a random assignment experiment abstract we conduct a random assignment experiment to investigate whether positive affect impacts time preference where time preference denotes a preference for present over future utility our result indicates that compared to neutral affect mild positive affect significantly reduces time preference over money this result is robust to various specification checks and alternative interpretations of the result are considered our result has implications for the effect of happiness on time preference and the role of emotions in economic decision making in general finally we reconfirm the ubiquity of time preference and start to explore its determinants djel d12 d83 i31