Working Paper: CEPR ID: DP4396
Authors: Daniele Paserman
Abstract: This Paper estimates the structural parameters of a job search model with hyperbolic discounting and endogenous search effort. It estimates quantitatively the degree of hyperbolic discounting, and assesses its implications for the impact of various policy interventions aimed at reducing unemployment. The model is estimated using data on unemployment spells and accepted wages from the National Longitudinal Survey of Youth (NLSY). The likelihood function explicitly incorporates all the restrictions implied by the optimal dynamic programming solution to the model. Both observed and unobserved heterogeneity are accounted for. The results point to a substantial degree of hyperbolic discounting, especially for low and medium wage workers. The structural estimates are also used to evaluate alternative policy interventions for the unemployed. Estimates based on a model with exponential discounting may lead to biased inference on the economic impact of policies.
Keywords: hyperbolic discounting; job search; policy evaluation; structural estimation
JEL Codes: C60; C73; D90; J64; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hyperbolic discounting (D15) | longer unemployment spells (J65) |
| hyperbolic discounting (D15) | delay job search activities (J68) |
| hyperbolic preferences (D11) | sensitivity to immediate costs (D91) |
| policies targeting job search assistance (J68) | differing effects based on discounting preferences (D15) |
| hyperbolic agents (L85) | different response to interventions (C90) |
| ignoring hyperbolic preferences (D11) | biased inferences regarding policy effectiveness (J78) |
| degree of hyperbolic discounting (D15) | accurately assessing impacts of unemployment policies (J68) |