Time Discounting and Wealth Inequality

Epper, Thomas; Fehr, Ernst; Fehr-Duda, Helga; Kreiner, Claus Thustrup; Lassen, David Dreyer; Leth‐Petersen, Søren; Rasmussen, Gregers Nytoft

doi:10.2139/ssrn.3465413

Cited by 21 publications

(37 citation statements)

References 44 publications

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“…One prediction is that decision makers can switch from preferring the earlier to the later payment as their wealth increases. In other words, richer people discount less steeply, consistent with empirical findings Epper et al, 2018). Another prediction is that, for small payments, discounting is close to hyperbolic for short delays and close to exponential for long delays.…”

Section: Our Model -Growth Rate Maximizationsupporting

confidence: 84%

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Microfoundations of Discounting

et al. 2019

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An important question in economics is how people choose between different payments in the future. The classical normative model predicts that a decision maker discounts a later payment relative to an earlier one by an exponential function of the time between them. Descriptive models use non-exponential functions to fit observed behavioral phenomena, such as preference reversal. Here we propose a model of discounting, consistent with standard axioms of choice, in which decision makers maximize the growth rate of their wealth. Four specifications of the model produce four forms of discounting -no discounting, exponential, hyperbolic, and a hybrid of exponential and hyperbolic -two of which predict preference reversal. Our model requires no assumption of behavioral bias or payment risk.

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Section: Our Model -Growth Rate Maximizationsupporting

confidence: 84%

“…with the findings of Epper et al (2018), that "individuals with relatively low time discounting are consistently positioned higher in the wealth distribution." It is likely consistent with , in which people with higher incomes were observed to discount less steeply.…”

Section: Wealth Effectsupporting

confidence: 55%

Microfoundations of Discounting

et al. 2019

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“…There is a larger literature focusing on other preference domains (see Section 1.). Note: This graph comes from Epper et al (2019b). It illustrates the mean of the incentivized experimentally elicited patience index by the three options respondents have when answering our time preference question (for details, see Epper et al, 2019b).…”

Section: Table B1mentioning

confidence: 99%

Parenting Values Moderate the Intergenerational Transmission of Time Preferences

Brenøe

Epper

2019

SSRN Journal

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We study the intergenerational transmission of time preferences in a setting without reverse causality concerns. We find substantial transmission of patience from parents to children, which is insensitive to the inclusion of comprehensive sets of administratively reported controls and persists as children age. We further explore heterogeneity in the transmission with respect to two theoretically important but distinct dimensions of socialization through which parents can influence children's traits: parenting values and parental involvement. Our results show that, in contrast to authoritative parents, authoritarian and permissive parents transmit patience to their offspring. Meanwhile, parental involvement is not an important moderator. These patterns replicate in an independent sample with richer measures of parental involvement.

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“…Thus, {η i } 5 i=1 and b 5 are identified from the transition probabilities over the durations longer than two years, as plotted in Figure (2). 20 Finally, the coefficients {a 1 , a 2 , a 3 , a 4 } are used to capture the difference in the transition probabilities between those in bad (or good) health for at least one year vs. two years. The solid lines in Figure ( 2show that our parsimonious model of health captures both the cross-sectional and dynamic moments of health over the life-cycle relatively well.…”

Section: Health Process Specification and Estimationmentioning

confidence: 99%

“…We convert it to 1996 dollars using the CPI. 40 Specifically, we compute are the estimated coefficients and the residuals from Equation (20). By construction, we remove the variation in net worth due to the variation in family size that is orthogonal to health status and age.…”

Section: The Estimation Algorithmmentioning

confidence: 99%

The Lifetime Costs of Bad Health

Nardi

Pashchenko²,

Porapakkarm

2017

SSRN Journal

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Health shocks are an important source of risk. People in bad health work less, earn less, face higher medical expenses, die earlier, and accumulate much less wealth compared to those in good health. Importantly, the dynamics of health are much richer than those implied by a low-order Markov process. We first show that these dynamics can be parsimoniously captured by a combination of some lag-dependence and ex-ante heterogeneity, or health types. We then study the effects of health shocks in a structural life-cycle model with incomplete markets. Our estimated model reproduces the observed inequality in economic outcomes by health status, including the income-health and wealth-health gradients. Our model has several implications concerning the pecuniary and non-pecuniary effects of health shocks over the life-cycle. The (monetary) lifetime costs of bad health are very concentrated and highly unequally distributed across health types, with the largest component of these costs being the loss in labor earnings. The non-pecuniary effects of health are very important along two dimensions. First, individuals value good health mostly because it extends life expectancy. Second, health uncertainty substantially increases lifetime inequality by affecting the variation in lifespans.

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Time Discounting and Wealth Inequality

Cited by 21 publications

References 44 publications

Microfoundations of Discounting

Microfoundations of Discounting

Parenting Values Moderate the Intergenerational Transmission of Time Preferences

The Lifetime Costs of Bad Health

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