Wednesday, December 3, 2014 | 12:30pm-2:00pm | Room 335, HSBC Business School

Abstract

Time-inconsistency caused by hyperbolic discount preference is important for efficient risk sharing. This paper analyzes efficient allocations between the principal and the hyperbolic agents in an environment without commitment. It shows that if the agents have hyperbolic discount preferences, history matters in an efficient allocation in no-commitment environment. The way that history matters can be used to distinguish the hyperbolic agents from the agents with constant discount factors in no-commitment environment. The model also suggests time-inconsistency generates different efficient allocation between commitment and no-commitment environment.