Optimal Screening of Time Inconsistency
نویسنده
چکیده
This paper develops a theory of optimal provision of commitment devices to people who value both commitment and exibility, and whose preferences di¤er in the degree of time inconsistency. If time inconsistency is observable, then both a planner and a monopolist provide devices that help each person commit to the e¢ cient level of exibility. But the combination of unobservable time inconsistency and preference for exibility creates an adverse-selection problem. To solve it, the monopolist and (possibly) the planner ine¢ ciently curtail exibility in the device for a more inconsistent person, and may have to add unused options to, or even distort, the device for a less inconsistent person. Flexibility is curtailed in a particular way that is evocative of existing commitment devices. This theory has normative as well as positive implications for private and public provision of these
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I study the optimal supply of exible commitment devices to people who value both commitment and exibility, and whose preferences exhibit varying degrees of time inconsistency. I nd that, if time inconsistency is observable, then both a monopolist and a planner supply devices that enable each person to commit to the e¢ cient level of exibility. If instead time inconsistency is unobservable, ...
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