Scandinavian Working Papers in Economics
Working Paper Series,
Research Institute of Industrial Economics
No 572: Welfare Foundations of Discounting
María Sáez-Martí () and Jörgen W. Weibull ()
Additional contact information
María Sáez-Martí: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Jörgen W. Weibull: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Abstract: We investigate whether temporal preferences expressed as a sum of discounted consumption utilities can be derived from a welfare representation in the form of a sum of discounted total utilities. We find that a consumption-based representation in the usual exponential form corresponds to one-period "altruism" towards one's future selves: the current self gives positive weight to her total utility in the next period, and weight zero to her total utility in all subsequent periods. We also find that a consumption-based representation in the quasi-exponential (ß,d)-form suggested by Phelps and Pollak (1968) and Laibson (1997) correspond to quasi-exponential altruism towards one's future selves. For ß=1/2, the welfare weights are exponential, while for ß 1/2 in favor of one's future selves. More generally, we establish a functional equation which relates welfare weights to consumption-utility weights. We also postulate five desiderata for consumption-utility weights. None of the usual formalizations satisfy all desiderata, but we propose a simple formalization which does.
Keywords: Altruism; Discounting; Dynamic Inconsistency; Time Inconsistency; Welfare
22 pages, January 23, 2002
Full text files
wp572.pdf
Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:iuiwop:0572This page generated on 2025-05-22 17:22:24.