Welfare Foundations of Discounting

Arbeitspapier

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 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 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IUI Working Paper ; No. 572

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Theory ; Altruism; Philanthropy; Intergenerational Transfers ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Macroeconomics: Consumption; Saving; Wealth
• Subject: Altruism ; Discounting ; Dynamic Inconsistency ; Time Inconsistency ; Welfare ; Altruismus ; Soziale Diskontrate ; Zeitkonsistenz ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Sáez-Martí, María ; Weibull, Jörgen W.
• Event: Veröffentlichung
• (who): The Research Institute of Industrial Economics (IUI)
• (where): Stockholm
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/95032
• Last update: 10.03.2025, 11:41 AM CET