Working Paper: CEPR ID: DP8512
Authors: Pieter A. Gautier; Aico van Vuuren
Abstract: 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%.
Keywords: discount rate; hedonic estimation; hyperbolic discounting; present bias
JEL Codes: C52; D03; D12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Present bias (D15) | No evidence of present bias in land lease market (D15) |
| Discount function (H43) | Exponential model with discount rate of 8% (E43) |
| Discount function (H43) | Consistent discounting behavior aligned with exponential discounting (D15) |
| Hyperbolic model performance (C52) | Poor compared to exponential model (C29) |