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Identification of Time-Inconsistent Models: The Case of Insecticide-Treated Nets

Aprajit Mahajan¹; Christian Michel²; Alessandro Tarozzi^3,4

¹ Dept. of Agricultural and Resource Economics, UC Berkeley , · ² Barcelona School of Economics · ³ Department of Economics, European University Institute , ; , ; and CEPR · ⁴ Universitat Pompeu Fabra and Barcelona School of Economics , ; , ; and CEPR

Abstract Time-inconsistency may play a central role in explaining inter-temporal behaviour, particularly among poor households. However, little is known about the distribution of time-inconsistent agents, and time-preference parameters are typically not identified in standard dynamic choice models. We formulate a dynamic discrete choice model in an unobservedly heterogeneous population of possibly time-inconsistent agents. We provide conditions under which all population type probabilities and preferences for both time-consistent and sophisticated agents are point-identified and sharp set-identification results for naïve and partially sophisticated agents. Estimating the model using data from a health intervention providing insecticide-treated nets (ITNs) in rural Odisha, India, we find that about two-thirds of our sample comprises time-inconsistent agents and that both sophisticated and naïve agents are considerably present-biased. Counterfactuals show that the under-investment in ITNs attributable to present-bias leads to substantial costs that are about four times the price of an ITN.

DOI

10.1093/restud/rdag018

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en

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