Welfare Implications of Non-unitary Time Discounting

Ohdoi, Ryoji and Futagami, Koichi (2019): Welfare Implications of Non-unitary Time Discounting.

Abstract

This study proposes a model of non-unitary time discounting and examines its welfare implications. A key feature of our model lies in the disparity of time discounting between multiple distinct goods, which induces an individual's preference reversals even though she normally discounts her future utilities for each good. After characterizing the time-consistent decision-making by such an individual in a general setting, we compare welfare achieved in the market economy and welfare in the planner's allocation from the perspective of all selves across time. Under certain situations, the selves in early periods strictly prefer the social planner's allocation, whereas the selves in future periods strictly prefer the market equilibrium. Therefore, the welfare implications of our model are quite different from those in the canonical discounting model and in models of other time-inconsistent preferences.

• Item Type: MPRA Paper
• Language: English
• Keywords: Non-unitary time discounting; Time inconsistency; Time-consistent tax policy.
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models

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