Consume Now or Later? Time Inconsistency, Collective Choice, and Revealed Preference

We develop a revealed preference methodology that allows us to explore whether time inconsistencies in household choice are the product of individual preference nonstationarities or the result of individual heterogeneity and renegotiation within the household. An empirical application to household-l...

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Bibliographic Details
Published in:The American economic review 2014-12, Vol.104 (12), p.4147-4183
Main Authors: Adams, Abi, Cherchye, Laurens, De Rock, Bram, Verriest, Ewout
Format: Article
Language:English
Subjects:
Bank rates
Behavior modeling
Consumer behavior
Consumption function
Councils
Decision analysis
Decision making
Discount rates
Economic models
Economic theory
Economics
Error rates
Family income
Household consumption
Households
Housing conditions
Modeling
Observed choices
Predictive modeling
Preferences
Public choice
Rationalization
Stationarity
Studies
Time series
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Summary:We develop a revealed preference methodology that allows us to explore whether time inconsistencies in household choice are the product of individual preference nonstationarities or the result of individual heterogeneity and renegotiation within the household. An empirical application to household-level microdata highlights that an explicit recognition of the collective nature of household choice enables the observed behavior to be rationalized by a theory that assumes preference stationarity at the individual level The methodology created in this paper also facilitates the recovery of theory-consistent discount rates for each individual within particular household under study.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.104.12.4147