Econometrica Vol. 83 No. 4 2015
Commitment, Flexibility, and Optimal Screening of Time Inconsistency
Abstract
I examine markets for flexible commitment devices populated by agents who value both commitment and ‡exibility, and whose preferences exhibit varying degrees of time inconsistency. I show that, if the agents’ time inconsistency is observable, then both a profit-maximizing monopolist and a welfare-maximizing planner help each agent commit to the efficient level of ‡exibility. If instead the agents’ time inconsistency is unobservable, the monopolist and the planner face a screening problem. I find that, to screen a more time-inconsistent from a less time-inconsistent agent, the monopolist and (possibly) the planner inefficiently curtail the ‡exibility of the device tailored to the first agent, and include unused options in the device tailored to the second agent. My results have important policy implications for designing special savings devices, that use tax incentives to help
- DOI
- 10.3982/ecta11851
- Volume
- 83
- Issue
- 4
- Pages
- 1425-1465
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex