Quasi-hyperbolic preferences and retirement: A comment

Diamond and Koszegi [Diamond, P. and Koszegi, B. (2003), "Quasi-Hyperbolic Preferences and Retirement," Journal of Public Economics, 87: 1839-1972] have argued that quasi-hyperbolic discounting can cause dynamic inconsistency in planning when to retire as well as in consumption plans. This comment shows that in a simple model with such preferences, retirement plans are never time-inconsistent, as these same preferences keep savings too low for individuals to ever be able to afford unplanned early retirement. Although only a simple example is presented here to demonstrate the point, this insight suggests the application of ordiamond03's framework should be reconsidered. The model presented needs to be extended to find robust general conclusions.