Time-Inconsistent Preferences, Retirement, and Increasing Life Expectancy

We study consumption behavior, retirement decisions, and endogenous growth within a dynamic equilibrium when individuals have present-biased preferences. Compared to individual with exponential preferences, individual with hyperbolic preferences will choose to retire early for present-biased preferences but to delay retirement for the initial time preference rate. We extend the benchmark equilibrium model to age-dependent survival law and solve numerically the equilibrium effects. It shows that, at the same age, the consumption-capital ratio may have slightly positive effect on increasing life expectancy before retirement but has a significantly positive effect on it after retirement.

Myopic preferences or subsistence income among rickshaw cyclists

Purpose – The purpose of this paper is to investigate why poor people make decisions that at first sight appear irrational. The author stays within the realms of classical consumption theory, and investigates preference-based explanations. The author studies the case of rickshaw rental versus purchase. One-year rent is sufficient to buy a rickshaw in the plains of Nepal, while a rickshaw will last many years, so purchase appears very profitable. Still most cyclists rent the rickshaw. Design/methodology/approach – Based on choices made by rickshaw cyclists between hypothetical financing schemes for rickshaws we investigate whether the explanation is a high time-preference rate or a high elasticity of the marginal utility of consumption, which in turn can be explained by preferences that are formed by consumption near a subsistence level. Findings – The authors find that subsistence constraints are more important than high time-preference rates. In short, many rickshaw cyclists switch from profitable investment decisions to myopic choices if the weekly payments are too high. Research limitations/implications – In contrast to standard bidding-forms, the methodology does not allow for exact estimates of the implied time-preference rate or the elasticity of the marginal utility of consumption. Practical implications – Microcredit has no role if people are subsistence constraint, as they will need to save every day also to repay loans. Social implications – The findings indicate that myopic choices by poor people are not due to myopic preferences, but rather that the disutility of reducing consumption today is too high. Originality/value – The authors believe bidding-forms are too complex for field experiments among people with no, or minimal, education. The simple hypothetical choices we have constructed appear to work.

Cost of Waiting, Risk, and Individual Action: The Case of Public Housing

In this paper the concept of waiting time for public housing is explored; the individual's decisionmaking process on whether to join the housing queue is modeled; how long he/she is prepared to wait for public housing is assessed; a methodology to evaluate the cost of this waiting time is proposed; and estimates of some likely values of this cost are made. The cost of waiting is of more than esoteric interest, impinging on several questions of policy, such as the use of waiting times as indicators in assessing need, the sale of council housing, and the efficiency of a nonprice method of resource allocation. The model predicts the maximum length of time a person will be prepared to wait, given his/her life expectancy in the authority's house, the relative cost to the person of alternative housing, and his/her time-preference rate. Risk preferences are also incorporated to assess the ‘risk premium’: The extra cost a person would sacrifice to be certain of obtaining public housing at a specified time. Estimates of the cost of waiting are derived from the model and also from a questionnaire survey of housing waiting-list applicants in North Tyneside Metropolitan Borough.