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

 

Abi Adams-Prassl, Laurens Cherchye, Bram De Rock, Ewout Verriest

 

AMERICAN ECONOMIC REVIEW VOL. 104, NO. 12, DECEMBER 2014

(pp. 4147-83)

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. (JEL E24, F13, F16)

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The American Economic Review