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

rational household labor supply traditionally household behavior is derived from the maximization of a unique utility function in this paper we propose an alternative approach in which the household is modeled as a two member collectivity taking pareto efficient decisions the consequences of this assumption are analyzed in a three good model in which only total consumption and each member s labor supply are observable if the agents are assumed egoistic i e they are only concerned with their own leisure and consumption it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint if alternatively agents are altruistic restrictions obtain in the nonparametric context useful interpretation stems from the comparison with the characterization of aggregate demand for a private good economy

life cycle consumption and hyperbolic discount functions abstract studies of animal and human behavior suggest that discount functions are approximately hyperbolic ainslie picoeconomics 1992 hyperbolic models explain a wide range of empirical anomalies including 1 missing precautionary savings effects 2 incongruence between the elasticity of intertemporal substitution and the inverse of the coefficient of relative risk aversion 3 consumption discontinuities at retirement 4 variation in patience over the life cycle 5 consumer self reports of undersaving 6 disproportionate retirement accumulation in illiquid assets 7 asset specific marginal propensities to consume and 8 declining national savings rates in developed countries hyperbolic models also provide a new framework for analyzing the welfare gains that come from pro saving policies like social security and tax deferred retirement accounts

reputation and signaling in asset sales abstract static adverse selection models of security issuance show that informed issuers can perfectly reveal their private information by maintaining a costly stake in the securities they issue this paper shows that allowing an issuer to both signal current security quality via retention and build a reputation for honesty leads that issuer to misreport quality even when owning a positive stake that is the equilibrium is neither separating nor pooling an issuer retains less as reputation improves and prices are more sensitive to retention when the issuer has a worse reputation

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

paying not to go to the gym how do consumers choose from a menu of contracts we analyze a novel dataset from three u s health clubs with information on both the contractual choice and the day to day attendance decisions of 7 752 members over three years the observed consumer behavior is difficult to reconcile with standard preferences and beliefs first members who choose a contract with a flat monthly fee of over 70 attend on average 4 3 times per month they pay a price per expected visit of more than 17 even though they could pay 10 per visit using a 10 visit pass on average these users forgo savings of 600 during their membership second consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year this is surprising because monthly members pay higher fees for the option to cancel each month we also document cancellation delays and attendance expectations among other findings leading explanations for our findings are overconfidence about future self control or about future efficiency overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences

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

the response of expenditures to anticipated income changes panel data estimates standard models of intertemporal allocation predict that the time path of expenditures should be independent of the time path of income recently two papers parker 1999 and souleles 1999 have suggested that u s households have a high marginal propensity to spend within year anticipated income changes we use an expenditure survey panel from spain to re examine this issue we exploit two important features of the spanish data first we have quarterly panel data that follows households for more than four quarters second we use the fact that workers are exogenously sorted into one of two payment schemes some receive the same amount each month of the year and others receive an extra payment in june and december the extra payment is large and predictable we examine the detailed pattern of expenditures over the year to see whether they differ between the two groups we fail to find even weak differences we complement this with a conventional euler equation analysis of excess sensitivity our predicting equation for quarterly earnings growth is much better than usual and is likely to give a powerful test of the hypothesis that predictable changes in income do not lead to changes in expenditure patterns the results of this analysis confirm the graphical analysis we find no evidence of excess sensitivity we conclude that households in normal times do smooth consumption over the year we suggest a reconciliation of our results with those of parker and souleles

opening the black box of intra household decision making theory and non parametric empirical tests of general collective consumption models we provide revealed preference tests of general collective consumption models that account for public consumption and externalities within the household we further propose a novel approach to model special cases of this model which imply alternative assumptions regarding the sharing rule our application uses the panel data from the russia longitudinal monitoring survey we find that the general model together with a large class of special cases cannot be rejected by contrast we do reject the standard unitary model since our tests are entirely nonparametric this provides strong evidence in favor of models focusing on intrahousehold decision making

the fleeting effect of advertising abstract this paper adds to the evidence that advertising effects depreciate rapidly inclusion of lagged advertising in empirical models may be unnecessary in addition the notion that accumulated advertising effects may be a barrier to entry is called into question

gender differences in time preferences this paper reports the results from a large online experiment in which we examine gender differences in time preferences subjects choose in different situations between receiving an immediate payment and receiving a different sum later we find that more men than women are impatient and choose to receive the immediate payment at least if the implicit interest rate of the late option is neither too high nor too low

i ll never forget my first cigarette a revealed preference analysis of the habits as durables model we provide a revealed preference analysis of the habits as durables model this approach avoids the need to impose a functional form on the underlying utility function we show that our characterization is testable by means of linear programming methods and we demonstrate its practical usefulness by means of an application to cigarette consumption using a spanish household consumption data set we find that the habits as durables model has better empirical fit in terms of predictive success compared to the short memory habits and life cycle models

divorce remarriage and welfare a general equilibrium approach modern marriage markets display increasing turnover with less marriage but more divorce and remarriage as a consequence a large number of children live in single parent and step parent households we summarize here a general equilibrium approach that allows welfare evaluations in the absence of children we show that higher aggregate divorce may raise welfare because it facilitates remarriage even children may be better off in a high divorce remarriage environment because of stronger incentives for fathers to transfer money to the custodial mothers jel j1 j12 j13 k1 k10

how demanding is the revealed preference approach to demand a well known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory or a warning that these conditions are so undemanding that almost anything goes this paper allows researchers to make this distinction our approach uses an axiomatic characterization of a measure of predictive success due to selten 1991 we illustrate the idea using a panel dataset the results show that this approach can lead us to radically reassess our view of the empirical performance of economic theory

foreign aid in a period of democratization the case of politically autonomous food funds abstract this article suggests a new model of dispensing foreign aid that transcends the limits of conventional one way transfers and responds to the particular challenges and opportunities associated with the ongoing process of democratization applied here specifically to food aid it illustrates how such dispensations could be better utilized in the context of politically autonomous food funds administered in recipient food poor countries it indicates how current food aid allocations could be used more efficiently and with better results particularly in terms of strengthening the position of the poor segments of the population

match quality new information and marital dissolution this article investigates the role of surprises in marital dissolution surprises consists of changes in the predicted earning capacity of either spouse data from the national longitudinal study of the high school class of 1972 is used we find that an unexpected increase in the husband s earning capacity reduces the divorce hazard while an unexpected increase in the wife s earning capacity raises the divorce hazard couples sort into marriage according to characteristics that are likely to enhance the stability of the marriage the divorce hazard is initially increasing with the duration of marriage and the presence of children and high levels of property stabilizes the marriage

the length of the effect of aggregate advertising on aggregate consumption abstract we investigate the longevity of aggregate advertising effects on aggregate consumption over the period 1947 1988 using updated methods the effects appear to linger for nine years raising further questions perhaps a return to this near dormant area of research could be productive

advertising as a predictor of investment the collapse of iceland s financial system in october 2008 is used as a natural experiment to test whether advertising decisions have a forward looking component the results show that changes in the volume of advertisements precede changes in investment

static and intertemporal household decisions we discuss the most popular static and dynamic models of household behavior our main objective is to explain which aspects of household decisions different models can account for using this insight we describe testable implications identification results and estimation findings obtained in the literature particular attention is given to the ability of different models to answer various types of policy questions

household intertemporal behaviour a collective characterization and a test of commitment in this paper a formal test of intra household commitment is derived and performed to that end two models of household intertemporal behaviour are developed in both models household members are characterized by individual preferences in the first formulation household decisions are always on the ex ante pareto frontier in the second model the assumption of intra household commitment required by ex ante efficiency is relaxed it is shown that the full efficiency household euler equations are nested in the no commitment euler equations using this result the hypothesis that household members can commit to future allocations of resources is tested using the consumer expenditure survey i strongly reject this hypothesis it is also shown that the standard unitary framework is a special case of the full efficiency model however if household members are not able to commit household intertemporal behaviour cannot be characterized using the standard life cycle model these findings have two main implications first policy makers can change household behaviour by modifying the decision power of individual household members second to evaluate programmes designed to improve the welfare of household members it would be beneficial to replace the standard unitary model with a characterization of household behaviour that allows for lack of commitment

a nonparametric test of the life cycle rational expectations hypothesis in a world of perfect certainty and perfect capital markets agents allocate expenditure in such a way that the marginal utility of discounted expenditure is the same in each period in this paper we present a test of whether any particular series of discounted prices and quantities can be exactly reconciled with a utility function and marginal utility of discounted expenditure that do not change from period to period we find that uk us and canadian postwar aggregate data all reject our condition although it is not rejected for long sub periods we show that our results for the uk suggest particular modifications to the strong form of the rational expectations hypothesis that our condition tests in fact these data are exactly consistent with a number of alternative hypotheses from this we argue that time series data are ill suited to parametric testing of any of the competing hypotheses on the inter temporal allocation of expenditure the pure theory of the inter temporal allocation of goods and time with perfect capital markets and perfect foresight is identical to the static demand case there is a single lifetime budget constraint and the allocation of expenditure to each period is made so that the marginal utility of discounted expenditure is the same in each period bewley 1977 and hall 1978 have identified the life cycle rational expectations hypothesis under uncertainty reh with the proposition that expected utility maximising consumers will allocate expenditures and time in such a way as to try and keep the marginal utility of discounted money constant given a set of time series on prices purchases wages and labor supply we can ask whether these realised plans are consistent with the life cycle hypothesis in this paper we propose a test that requires no ad hoc specification of functional forms or error processes but rather gives an answer yes or no based on finite mathematical techniques the specific hypothesis we test is a strong form of the reh viz that the marginal utility of discounted expenditure is constant over the period of observation for long time series this seems to be an absurdly strong hypothesis since it is effectively equivalent to assuming perfect capital markets and perfect foresight with regard to all important variables if however we can accept this strong hypothesis for a particular data set then any test of the weaker forms of the life cycle rational expectations hypothesis on this data set must be interpreted

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

the collective model of household consumption a nonparametric characterization we provide a nonparametric characterization of a general collective model for household consumption which includes externalities and public consumption next we establish testable necessary and sufficient conditions for data consistency with collective rationality that only include observed price and quantity information these conditions have a similar structure as the generalized axiom of revealed preference for the unitary model which is convenient from a testing point of view in addition we derive the minimum number of goods and observations that enable the rejection of collectively rational household behavior

efficient intra household allocations a general characterization and empirical tests the neoclassical theory of demand applies to individuals yet in empirical work it is usually taken as valid for households with many members this paper explores what the theory of individuals implies for households that have more than one member we make minimal assumptions about how the individual members of the household resolve conflicts all we assume is that however decisions are made outcomes are efficient we refer to this as the collective setting we show that in the collective setting household demands must satisfy a symmetry and rank condition on the slutsky matrix we also present some further results on the effects on demands of variables that do not modify preferences but that do affect how decisions are made we apply our theory to a series of surveys of household expenditures from canada the tests of the usual symmetry conditions are rejected for two person households but not for one person households we also show that income pooling is rejected for two person households we then test for our collective setting conditions on the couples data none of the collective setting restrictions are rejected we conclude that the collective setting is a plausible and tractable next step to take in the analysis of household behavior

choice and procrastination author s o donoghue ted rabin matthew abstract recent models of procrastination due to self control problems assume that a procrastinator considers just one option and is unaware of her self control problems we develop a model where a person chooses from a menu of options and is partially aware of her self control problems this menu model replicates earlier results and generates new ones a person might forego completing an attractive option because she plans to complete a more attractive but never to be completed option hence providing a non procrastinator additional options can induce procrastination and a person may procrastinate worse pursuing important goals than unimportant ones

advertising and aggregate consumption a bayesian dsge assessment aggregate data reveal that advertising in the u s absorbs approximately 2 of gdp and has a well defined pattern over the business cycle being strongly procyclical and highly volatile because the purpose of brand advertising is to foster sales we ask whether such spending has an appreciable effect on the pattern of aggregate consumption and through this avenue on economic activity this question is addressed by developing a dynamic general equilibrium model in which households preferences for differentiated goods depend on the intensity of brand advertising which is endogenously determined by profit maximizing firms once the model is estimated to match the u s economy it argues that the presence of advertising in the long run raises aggregate consumption and hours worked eventually fostering economic activity we also find that advertising has a relevant impact on fluctuations in consumption investment and markup over the business cycle all of the abovementioned effects are proven to epend crucially on the degree of competitiveness of advertising at the firm level

personality traits and the marriage market which and how many attributes are relevant for the sorting of agents in a matching market this paper addresses these questions by constructing indices of mutual attractiveness that aggregate information about agents attributes the first k indices for agents on each side of the market provide the best approximation of the matching surplus by a k dimensional model the methodology is applied on a unique dutch household survey containing information about education height body mass index health attitude toward risk and personality traits of spouses

temporal aggregation the data interval bias and empirical estimation of bimonthly relations from annual data in an important study reviewing the literature on econometric studies of the relationship between advertising and sales clarke clarke darral g 1976 econometric measurement of the duration of advertising effects on sales j marketing res 13 november 345 357 concluded that the implied duration interval of the effects of advertising on sales were too long when the studies used annual data a theoretical explanation is provided here for the observation of parameter estimates which vary with the data interval employed in the analysis parameter estimates are developed on the basis of data aggregated at various levels of temporal aggregation and compared with theoretical values it is demonstrated that it is possible to recover bimonthly parameters when only annual data are available

long term partnership formation marriage and employment of course marriage and employment are different nevertheless a worker looking for a job a rm looking for worker or a single person looking for a marriage partner face similar problems as all are seeking a long term partner indeed forming long term partnerships is a common occurrence in life there are many other examples business people search for other business people to form a pro table relationship bridge players seek to nd a suitable partners students search for a good university we would all like to nd a good friend etc the problem becomes signi cant if there are substantial differences in the return obtained from forming a partnership with different partners for example employers differ in the wages they offer or in the work environment they provide in such a situation a worker may reject some job offers similarly as many have learned to their cost some make better marriage partners than others the problem is two sided while a worker is evaluating a potential employer the employer is also evaluating the worker it is this two sided aspect of the problem that generates a signi cant interest a worker s willingness to accept employment at a rm depends not only on the characteristics of the rm but also the other possible options open to the worker the better an individual s opportunities elsewhere the more selective he or she will be in evaluating a potential partnership an academic who believes harvard may make an offer in the near future will be more selective in evaluating offers from lesser universities in this way expectations play a role if a single man believes that few if any women will nd him an acceptable marriage partner then he may accept the rst opportunity that presents itself partnership formation typically does not comply with a classic market situation where all participants know everything and all trades take place at zero cost finding a job nding a husband or wife or nding a business partner is a time consuming activity where opportunities typically arrive over time at uncertain intervals of time of course we can act in ways that in uence the arrival rate of potential partner workers go to employment agencies or read help wanted advertisements in newspapers singles of a certain age go to discos or join tennis clubs the literature on search and matching sm see mortensen 1982 and pissarides 1990 for early examples 1 provides an excellent framework for the economic journal 109 june f307 f334 royal economic society 1999 published by blackwell publishers 108 cowley road oxford ox4 1jf uk and 350 main street malden ma 02148 usa

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

consume now or later time inconsistency collective choice and revealed preference this paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level 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 choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level for our particular short panel data set simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98 4 of the sample to be rationalised by a model that assumes exponential discounting at the individual level we also find that couples characterized by lower divergence in spousal discount rates are older more likely to have children and wealthier which we take as indications of experiencing higher match quality

estimating time preferences from convex budgets experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision making such high rates are often attributed to present biased discounting a well known bias of standard measurements is the assumption of linear consumption utility attempting to correct this bias using measures of risk aversion to identify concavity researchers find reasonable discounting but at the cost of exceptionally high utility function curvature we present a new methodology for identifying time preferences both discounting and curvature from simple allocation decisions we find reasonable levels of both discounting and curvature and surprisingly dynamically consistent time preferences jel c91 d12 d81 understanding and estimating time preferences is obviously of great importance to economists marketers and policy makers consumers decide how much to invest in savings education real estate and life insurance how much to diet exercise and smoke whether to marry when to have children and what to leave in their wills while there has been substantial research estimating time preferences using aggregate consumption data 1 the bulk of the effort has occurred in laboratory environments 2 among the many laboratory techniques employed recent studies have favored multiple price lists mpl with monetary payments 3 with mpls individuals are asked multiple times to choose between smaller payment amounts closer to the present and larger amounts further into the future the interest rate increases monotonically in a price list such that the point where an individual switches from preferring sooner payments to later payments carries interval

income and outcomes a structural model of intrahousehold allocation there is evidence from several sources that one cannot treat many person households as a single decision maker if this is the case then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household we develop a method of identifying how incomes affect outcomes given conventional family expenditure data the basic assumption we make is that household decision processes lead to efficient outcomes we apply our method to a sample of canadian couples with no children we find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth

the personal discount rate evidence from military downsizing programs the military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums the program offered over 65 000 separatees the choice between an annuity and a lump sum payment despite break even discount rates exceeding 17 percent most of the separatees selected the lump sum saving taxpayers 1 7 billion in separation costs estimates of discount rates range from 0 to over 30 percent and vary with education age race sex number of dependents ability test score and the size of payment

advertising in consumer goods industries durability economies of scale and heterogeneity hree prominent explanations can be offered for the large and persistent recorded profit rates of firms in heavily advertised consumer goods industries these explanations are based on durability scale economies and heterogeneity for advertising respectively the first explanation posits a prolonged durability for advertising as a consequence recorded profit rates are overstated because accounting convention expenses advertising rather than properly treating it as an investment in durable assets 2 when the durability of advertising is sufficiently prolonged normal returns on the unreported advertising assets fully account for apparent windfall profits a second explanation rests on the presumed collusion