Estimating Temptation and Commitment Over The Life‐cycle
Publikation: Bidrag til tidsskrift › Tidsskriftartikel › fagfællebedømt
Dokumenter
- KovacsLowMoran2020
Indsendt manuskript, 574 KB, PDF-dokument
- iere.12491
Forlagets udgivne version, 379 KB, PDF-dokument
This paper estimates the importance of temptation for consumption smoothing and asset accumulation in a life‐cycle model. We use two complementary estimation strategies: first, we estimate the model‐implied Euler equation; second, we match liquid and illiquid wealth accumulation using the Method of Simulated Moments. In both cases, we find that the utility cost of temptation is one‐quarter of the utility benefit of consumption. Further, temptation is crucial for correctly estimating the elasticity of intertemporal substitution: EIS estimates are biased downward when ignoring temptation. Finally, the model only matches the share of illiquid wealth if temptation is in the preference specification.
Originalsprog | Engelsk |
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Tidsskrift | International Economic Review |
Vol/bind | 62 |
Udgave nummer | 1 |
Sider (fra-til) | 101-139 |
ISSN | 0020-6598 |
DOI | |
Status | Udgivet - 2021 |
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