A univariate real-valued function is said to be completely monotone if it takes positive values and alternate the signs of its higher order derivatives, starting from everywhere negative first derivatives. We prove that the representative consumer’s discount factor of a continuous-time economy under uncertainty is a power function of some completely monotone function of time satisfying certain ...

Using students’ predicted and unpredicted delays in midterm preparation as measures of time-inconsistency and self-awareness, this paper shows that time-inconsistent behavior is associated with inferior class performance. Most students showed some time-inconsistency. Most were at least partially aware of their time-inconsistency. Despite full awareness, the sophisticates still under-performed i...

A decision maker with time consistent preferences may exhibit diminishing impatience, when uncertain lifetime is accounted for. Uncertain lifetime captures not only the risk of mortality, but also the possibility that a promise for a delayed reward might be breached, or a postponed consumption might not be realized. The restrictions that time consistency imposes on additive intertemporal prefer...

In this paper we study the implications of population ageing in an economy with a sizeable non-traded goods sector. To this effect a highly stylized micro-founded macro model is constructed in which the age structure of the population plays a non-trivial role. The model distinguishes separate birth and death probabilities (thus allowing for net population change), allows for age-dependent labou...

We examine self-control problems — modeled as time-inconsistent, presentbiased preferences—in a model where a person must do an activity exactly once. We emphasize two distinctions: Do activities involve immediate costs or immediate rewards, and are people sophisticated or naive about future self-control problems? Naive people procrastinate immediate-cost activities and preproperate—do too soon...

In this paper, we examine whether the imperfections in the credit market spill over to the labor market. We examine the case of a country that experienced a very high degree of imperfections in the financial markets, but underwent substantial changes in 1992 due to the liberalization brought by the European unification and other institutional changes. Italy is therefore a good laboratory to stu...

Kocherlakota and Pistaferri (2007) describe two different models (Private Information Pareto Optimal and Incomplete Markets) of how households partially insure themselves against idiosyncratic shocks. They demonstrate that the models differ in terms of their implications for real exchange rates. In this paper, we use data from a wide range of countries, and document that there is a statististic...

This paper adopts a stochastic overlapping generations framework to analyze the allocation of aggregate financial risks under different social security systems and a majority voting rule. We study whether there will be switches between pay-as-you-go (PAYG) and fully funded (FF) systems in such an economy. We show that in case of a negative aggregate shock, lowincome young individuals will form ...

We provide a lifecycle framework for comparing the insurance value of disability benefits and the incentive cost. We estimate the risks that individuals face and the parameters governing the disability insurance program using longitudinal US data on consumption, health, disability insurance, and wages. We characterize the economic effects of disability insurance and study how policy reforms imp...

This paper analyses the e¤ects of reducing unfunded social security in a closed economy that consists of a service sector and a commodity sector. It is shown that if old agents mainly demand labour intensive services, a modest decrease of the pay-as-you-go pension scheme still raises long-run utility as long as the economy is dynamically e¢cient. However, entirely privatising the social securit...