Working Paper: CEPR ID: DP17888
Authors: Aprajit Mahajan; Christian Michel; Alessandro Tarozzi
Abstract: Time-inconsistency may play a central role in explaining inter-temporal behavior, particularly among poor households. However, little is known about the distribution of time-inconsistent agents, and time-preference parameters are typically not identified in standard dynamic choice models. We formulate a dynamic discrete choice model in an unobservedly heterogeneous population of possibly time-inconsistent agents. We provide conditions under which all population type probabilities and preferences for both time-consistent and sophisticated agents are point-identified and sharp set-identification results for \naive and partially sophisticated agents. Estimating the model using data from a health intervention providing insecticide treated nets (ITNs) in rural Orissa, India, we find that a little over two-thirds of our sample comprises time-inconsistent agents and that both sophisticated and naiive agents are considerably present-biased. Counterfactuals show that the under-investment in ITNs attributable to present-bias leads to substantial costs that are about five times the price of an ITN.
Keywords: time inconsistency; partial identification; mixture model; expectations; bednets; dynamic discrete choice
JEL Codes: I1; I3; D9
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| present bias (D15) | underinvestment in ITNs (H54) |
| underinvestment in ITNs (H54) | increased costs associated with malaria (I15) |
| present bias (D15) | likelihood of purchasing ITNs (G52) |
| present bias (D15) | likelihood of retreating ITNs (R20) |
| higher present bias (D91) | lower ITN purchases (H57) |
| higher present bias (D91) | lower retreatments of ITNs (Y50) |
| lower ITN purchases (H57) | increased malaria risk (O15) |
| lower retreatments of ITNs (Y50) | increased malaria risk (O15) |