Time-consistent Individuals, Time-inconsistent Households

I present a model of consumption and savings for multi-person households in which members are imperfectly altruistic and share wealth. I show that, despite having standard exponential time preferences, the household is time-inconsistent: members save too little and overspend on private consumption goods. Access to private illiquid durable goods can exacerbate overconsumption by providing a way for members to lock-up wealth from each other. The household remains time-inconsistent, even when it is possible for members to save separately, whenever intra-household relative-wealth shocks create the possibility that one member will choose to transfer wealth to the other in the future. JEL Codes: D13, H31, D91 ∗Columbia Business School. E-mail: [email protected]. I thank Patrick Bolton, Pierre-Andre Chiappori, Daniel Gottlieb, Ulrike Malmendier, Daniel Paravisini, Bryan Routledge, Tano Santos, Daniel Wolfenzon, and seminar participants at Anderson School of Management, Columbia Business School, Carlson School of Management, Dartmouth University, Fuqua School of Business, Rady School of Management, Stockholm School of Economics, as well as conference participants at the American Economic Association Meetings, Corporate Finance NBER Fall Session, Household Finance NBER Summer Institute, Western Finance Association Conference, and World Finance Conference. I thank Tara Philip for outstanding research assistance. All remaining errors are my own.