Working Paper: NBER ID: w13375
Authors: Hanming Fang; Dan Silverman
Abstract: We empirically implement a dynamic structural model of labor supply and welfare program participation for never-married mothers with potentially time-inconsistent preferences. Using panel data on the choices of single women with children from the NLSY 1979, we provide estimates of the degree of time-inconsistency, and of its influence on the welfare take-up decision. With these estimates, we conduct counterfactual experiments to quantify the utility loss stemming from the inability to commit to future decisions, and the potential utility gains from commitment mechanisms such as welfare time limits and work requirements.
Keywords: time inconsistency; welfare participation; NLSY; dynamic structural model; present-biased preferences
JEL Codes: I38; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| time inconsistency (D15) | welfare program participation (I38) |
| time-inconsistent preferences (D15) | suboptimal decisions regarding labor supply (J22) |
| inability to commit to future choices (D91) | utility loss (L97) |
| commitment mechanisms (D70) | altered decision-making behaviors (D91) |
| commitment mechanisms (D70) | improved welfare outcomes (I38) |
| time inconsistency (D15) | understanding of welfare participation decisions (I38) |