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Research Institute of Industrial Economics (IFN) Working Paper Series

No 575:
Discounting and Future Selves

María Sáez-Martí () and Jörgen W. Weibull ()

Abstract: Is discounting of future instantaneous utilities consistent with altruism towards future selves? More precisely, can temporal preferences, expressed as a sum of discounted instantaneous utilities, be derived from a representation in the form of a sum of discounted total utilities? We find that a representation in the quasi-exponential (ß,d)-form in Phelps and Pollak (1968) and Laibson (1997) correspond to quasi-exponential altruism towards one's future selves. For ß=1/2, these 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 instantaneous-utility weights and apply this equation to a number of examples. We also postulate five desiderata for instantaneous-utility discounting. None of the usual discount functions satisfy all desiderata, but we propose a simple class of discount functions which does.

Keywords: Altruism; Discounting; Dynamic Inconsistency; Welfare ; (follow links to similar papers)

JEL-Codes: D11; D64; D91; E21; (follow links to similar papers)

23 pages, February 21, 2002

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This paper is published as:
Sáez-Martí, María and Jörgen W. Weibull, (2005), 'Discounting and Altruism to Future Decision-makers', Journal of Economic Theory, Vol. 122, pages 254-266



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