Identifying present bias and time preferences with an application to land-lease-contract data1

Summary What can contracts—traded and priced in a competitive market and featuring a pre-specified system of future payments—teach us about time preferences and present bias? We first show that identification of present bias requires assumptions on the felicity function and that agents must have cre...

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Bibliographic Details
Published in:The econometrics journal 2020-09, Vol.23 (3), p.363-385
Main Authors: Gautier, Pieter A, van Vuuren, Aico
Format: Article
Language:English
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Summary:Summary What can contracts—traded and priced in a competitive market and featuring a pre-specified system of future payments—teach us about time preferences and present bias? We first show that identification of present bias requires assumptions on the felicity function and that agents must have credit constraints on consumption expenditure. Moreover, when there is heterogeneity in present bias, identification requires that agents with the same present bias parameter buy houses with different contracts. We illustrate our findings with observational land-lease-contract data from Amsterdam.
ISSN:1368-4221
1368-423X
DOI:10.1093/ectj/utaa018