Abstract
Hyperbolic discounting is one potential reason why savings remain low among the poor. Most evidence of hyperbolic discounting is based on violations of either stationarity or time consistency. Stationarity is violated when intertemporal choices differ for trade-offs in the near versus the more distant future. Time consistency is violated if the optimal allocation for specific dates changes over time. Both types of choice reversals may however also result from time-varying discount rates. Hyperbolic discounting is an unambiguous explanation for choice reversals only if the same individuals violate both stationarity and time consistency. Our field experiment in Nigeria examines the extent to which this is the case. The experiment measured both stationarity and time consistency for the same participants. Violations of the two rarely coincide, especially among more liquidity-constrained participants. Thus, in a context of liquidity constraints, eliciting only one type of choice reversal is insufficient to identify hyperbolic discounting.
Original language | Undefined/Unknown |
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Pages (from-to) | 77-90 |
Number of pages | 14 |
Journal | Journal of Development Economics |
Volume | 126 |
Issue number | - |
DOIs | |
Publication status | Published - 1 May 2017 |
Funding
An earlier version circulated under the title ‘Time Inconsistent Behavior Under Incomplete Markets: Results from a Fields Experiment in Nigeria.’ We gratefully acknowledge funding from the PharmAccess Foundation 2011-08 and Vrije Universiteit Amsterdam (VU-IRPP Grant 2012-06), as well as the Netherlands Organisation for Scientific Research (NWO, Grant no. 451-10-002). We thank Prof. Akande, Dr. Osagbemi, Dr. Ameen, Dr. Olawale and our enumerators in Nigeria for excellent data collection. Chris Elbers, Jan Willem Gunning, Yoram Halevy, Glenn Harrison, Shachar Kariv, Dean Karlan, and Charles Sprenger provided valuable comments, as well as numerous seminar and conference participants.
Funders | Funder number |
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PharmAccess Foundation | 2011-08, 2012-06 |
Nederlandse Organisatie voor Wetenschappelijk Onderzoek | 451-10-002 |
Datasets
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Financial and Health Diaries 2012-2013: A year-long weekly panel of farming households in Nigeria and Kenya
Janssens, W. (Creator), Kramer, B. (Creator), van der List, M. (Contributor) & Pap, D. (Data Manager), DataverseNL, 18 Nov 2019
DOI: doi:10.34894/AXFRPB
Dataset