Hyperbolic discounting and state‐dependent commitment

Bibliographic Data

ID9722791
AuthorsTakayuki Ogawa (0000-0002-7424-6885, Osaka University of Economics), Hiroaki Ohno (0000-0002-3246-4809, Meiji Gakuin University, corresponding author)
Year2024
Volume91
Issue362
Pages414-445
Publication date2024-04-01
Open AccessYes
TypeARTICLE
VenueEconomica (JOURNAL)
Journal identifiersISSN: 0013-0427 • E-ISSN: 1468-0335
PublisherWiley (PUBLISHER • GB)
DOI10.1111/ecca.12507
OpenAlexW4389509740
LanguageEN
References cited43

In a stochastic economy with uninsurable endowment risk, we establish a condition under which hyperbolic‐discounting consumers commit to a future consumption path using both illiquid assets and borrowing constraints as commitment devices. There is the possibility that a state‐dependent commitment can be adopted as an equilibrium consumption strategy. On a path leading to low future endowment, the current self can commit to its own optimal consumption path, which is undesirable for future selves. In contrast, along the path with a high future endowment, the current self cannot make a commitment and must accept a consumption allocation that future selves will revise. Thus, depending on what stochastic state will arise, people cannot fully utilize the available commitment devices in risky situations

Commit · Consumption (sociology) · Discounting · Dynamic inconsistency · Economics · Endowment · Hyperbolic discounting · Microeconomics · Path (computing) · State (computer science) · Computer Science · Decision-Making and Behavioral Economics · Economic theories and models · Finance · Financial Literacy, Pension, Retirement Analysis

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