Instantaneous Gratification<xref ref-type="fn" rid="qjs051-FN45"></xref>
Extending Barro (1999) and Luttmer and Mariotti (2003), we introduce a new model of time preferences: the instantaneous-gratification model. This model applies tractably to a much wider range of settings than existing models. It applies to both complete- and incomplete-market settings and it works with generic utility functions. It works in settings with linear policy rules and in settings in which equilibrium cannot be supported by linear rules. The instantaneous-gratification model also generates a unique equilibrium, even in infinite-horizon applications, thereby resolving the multiplicity problem hitherto associated with dynamically inconsistent models. Finally, it simultaneously features a single welfare criterion and a behavioral tendency towards overconsumption. JEL Codes: C6, C73, D91, E21. Copyright 2012, Oxford University Press.
Year of publication: |
2012
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Authors: | Harris, Christopher ; Laibson, David |
Published in: |
The Quarterly Journal of Economics. - Oxford University Press, ISSN 1531-4650. - Vol. 128.2012, 1, p. 205-248
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Publisher: |
Oxford University Press |
Saved in:
Online Resource
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