Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95032
Authors: 
Sáez-Martí, María
Weibull, Jörgen W.
Year of Publication: 
2002
Series/Report no.: 
IUI Working Paper 572
Abstract: 
We investigate whether temporal preferences expressed as a sum of discounted consumption utilities can be derived from a welfare representation in the form of a sum of discounted total utilities. We find that a consumption-based representation in the usual exponential form corresponds to one-period 'altruism' towards one's future selves: the current self gives positive weight to her total utility in the next period, and weight zero to her total utility in all subsequent periods. We also find that a consumption-based representation in the quasi-exponential (ß,d)-form suggested by Phelps and Pollak (1968) and Laibson (1997) correspond to quasi-exponential altruism towards one's future selves. For ß=1/2, the welfare weights are exponential, while for ß<1/2 they are biased in favor of the current self, and for ß>1/2 in favor of one's future selves. More generally, we establish a functional equation which relates welfare weights to consumption-utility weights. We also postulate five desiderata for consumption-utility weights. None of the usual formalizations satisfy all desiderata, but we propose a simple formalization which does.
Subjects: 
Altruism
Discounting
Dynamic Inconsistency
Time Inconsistency
Welfare
JEL: 
D11
D64
D91
E21
Document Type: 
Working Paper

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