A flexible test for present bias and time preferences using land-lease contracts

Arbeitspapier

When agents have present bias, they discount more between now and the next period than between period t (> 1) and t + 1. How fast the future discount rate (evaluated today) decays is an empirical question. We show that the discount function can be non-parametrically identified with contracts that specify payments that take place at various points in time in the future and which are traded and priced in a competitive market. We use a unique land lease-contract data set for Amsterdam, which has the above properties, to test for present bias in a flexible way. We find no evidence for present bias in this market. Even though we allow for a general-hyperbolic specification (which has exponential discounting as a special case), our estimates converge to an exponential discount function with a corresponding discount rate (in our baseline specification) of 8 %.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 5821

Classification and Topics

• Classification: Wirtschaft ; Model Evaluation, Validation, and Selection ; Consumer Economics: Empirical Analysis
• Subject: present bias ; hyperbolic discounting ; discount rate ; hedonic estimation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gautier, Pieter A. ; van Vuuren, Aico
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/51954
• URN: urn:nbn:de:101:1-201107042706
• Last update: 10.03.2025, 11:44 AM CET