Collective Intertemporal Choice: Time Consistency vs. Time Invariance

We study collective choice when individuals have heterogeneous discounted utilitarian preferences. Two attractive properties of intertemporal preferences are indistinguishable for individuals, but have dramatically different implications for collective choice. Time Consistency requires a plan that is optimal at one evaluation date to be optimal at all later evaluation dates, while Time Invariance requires preferences to be unchanged under translations of the time axis. We study the implications of these two properties in a tractable dynamic model that captures both common resource and public goods problems. Utilitarian social planners implement the first best if collective preferences are time consistent, but not if they are time invariant. Decentralized alternatives – property rights (for common resources) and voting (for public goods) – can strictly improve on the planning equilibrium if social preferences are time invariant. We reflect on the implications of these findings for dynamic welfare economics. Revealed preference cannot determine which property we should adopt, but each property is normatively attractive in some contexts. JEL codes: D60, D71, D90