Measuring time preferences

We review research that measures time preferences—i.e., preferences over intertemporal tradeoffs. We distinguish between studies using financial flows, which we call “money earlier or later” (MEL) decisions and studies that use time-dated consumption/effort. Under different structural models, we show how to translate what MEL experiments directly measure (required rates of return for financial flows) into a discount function over utils. We summarize empirical regularities found in MEL studies and the predictive power of those studies. We explain why MEL choices are driven in part by some factors that are distinct from underlying time preferences.National Institutes of Health (NIA R01AG021650 and P01AG005842) and the Pershing Square Fund for Research in the Foundations of Human Behavior

SOURCES OF IRREVERSIBLE CONSUMER DEMAND IN U.S. DAIRY PRODUCTS

Irreversible demand is relevant to pricing strategy and demand modeling with weekly data. Competing explanations include loss aversion and stockpiling. Irreversible models for U.S. cheese and table spreads suggest that stockpiling dominates loss aversion. Price smoothing may be an inappropriate strategy in this case. Reversible demand models applied to weekly data may overestimate own-price elasticities.Demand and Price Analysis,

The role of public debt in the game of double chicken

This paper explores how debt accumulation is affected by the strategic interactions between monetary and fiscal authorities. To achieve the second best with a dependent central bank, the government needs to be made both more conservative and more impatient. However, in the absence of political distortions, an optimally designed conservative, independent central bank is sufficient to establish the second best. In the presence of political distortions, however, also an optimal debt target is needed. Keywords: Central bank independence, price stability weights, (optimal) debt targets, strategic debt management, political distortions, optimal preferences.public economics ;

Behavioral Economics: Past, Present, Future

Behavioral economics increases the explanatory power of economics by providing it with more realistic psychological foundations. This book consists of representative recent articles in behavioral economics. This chapter is intended to provide an introduction to the approach and methods of behavioral economics, and to some of its major findings, applications, and promising new directions. It also seeks to fill some unavoidable gaps in the chapters’ coverage of topics

An overview of economic applications of David Schmeidler`s models of decision making under uncertainty

This paper surveys some economic applications of the decision theoretic framework pioneered by David Schmeidler to model effects of ambiguity. We have organized the discussion principally around three themes: financial markets, contractual arrangements and game theory. The first section discusses papers that have contributed to a better understanding of financial market outcomes based on ambiguity aversion. The second section focusses on contractual arrangements and is divided into two sub-sections. The first sub-section reports research on optimal risk sharing arrangements, while in the second sub-section, discusses research on incentive contracts. The third section concentrates on strategic interaction and reviews several papers that have extended different game theoretic solution concepts to settings with ambiguity averse players. A final section deals with several contributions which while not dealing with ambiguity per se, are linked at a formal level, in terms of the pure mathematical structures involved, with Schmeidler`s models of decision making under ambiguity. These contributions involve issues such as, inequality measurement, intertemporal decision making and multi-attribute choice.Ellsberg Paradox, Ambiguity aversion, Uncertainty aversion

On the Desirability of Taxing Capital Income in Optimal Social Insurance

This paper analyzes optimal linear taxes on labor income and savings in a two-period life cycle model with ex ante identical households, endogenous leisure demands in both periods, and general processes of skill shocks over the life cycle. We demonstrate that the Atkinson-Stiglitz theorem breaks down under risk. Capital taxes are employed besides labor income taxes for two distinct reasons: i) capital taxes reduce labor supply distortions on second-period labor supply, since second-period labor supply and saving are substitutes, ii) capital taxes insure first-period income risk, although this benefit is partially off-set because first-period labor supply and saving are complements. Our results imply that (retirement) saving should not be actuarially fair.Optimal Capital Taxation, Risk, Atkinson-Stiglitz theorem

LOSS AVERSION AND LABOR SUPPLY

In many occupations, workers’ labor supply choices are constrained by institutional rules regulating labor time and effort provision. This renders explicit tests of the neoclassical theory of labor supply difŽ cult. Here we present evidence from studies examining labor supply responses in “neoclassical environments” in which workers are free to choose when and how much to work. Despite the favorable environment, the results cast doubt on the neoclassical model. They are, however, consistent with a model of reference-dependent preferences exhibiting loss aversion and diminishing sensitivity.labor supply, loss aversion, neoclassical environments

A framework for the analysis of mineral tax policy in sub-Saharan Africa

Given the dual role played by the Government as resource owner and tax collector in many sub - Saharan economies, it is important to separate"resource factor payments"from taxes through the use of different instruments. The instruments to be considered are: (1) a factor payment system that includes"ad rem"or"ad valorem"royalties. Production sharing, resource rent schemes, and fixed fees could also be used, but some form of unit payment is necessary and justified, because natural resources in the ground are inputs into the production process; (2) a cash flow and withholding tax system initially for the mineral sectors and eventually for other sectors of the economy. The cash flow tax would capture a share of the"economic rent"from each sector and be neutral across sectors; and (3) a depletion account to preserve the nations capital stock. Natural resources are part of an economy's capital stock, which will fall unless"replacement investment"is made as the resource is depleted.Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance,Health Economics&Finance

Disposition effect and gender

Investors seem to hold on to their losing stocks to a greater extent than they hold on to their winning stocks. This well-document behavioral regularity is termed disposition effect (Shefrin and Statman 1985). We set an experiment to replicate results from a previous study of the disposition effect (Weber and Camerer 1998), and further show that a subject’s gender may interfere with the effect’s detection.