On Markovian collective choice with heterogeneous quasi-hyperbolic discounting

Journal article: A general setup is considered where quasi-hyperbolic discounting agents differ in assuming heterogeneous bias for the present as well as heterogeneous discounting parameters, consumptions being, moreover, subject to a standard feasibility constraint. A collective utility function is defined as a linear combination of the inter-temporal utilities of the selves of the different agents, the elementary unit being thus the self of a given period of a given agent. Such a framework generating a tension between Pareto-optimality and time consistency for the optimal allocations, a new approach is introduced in order to tackle this issue. This builds from an a priori time-inconsistent collective utility function where the benevolent planner is to be apprehended in terms of a sequence of successive incarnations, any of these incarnations being endowed with its own objective. The associated optimal policy is the equilibrium of a game between the successive incarnations of the planner when the players follow Markovian strategies. This is compared with a more standard approach where restrictions would be imposed on the collective utility function that ensure the time consistency of the optimal decisions.

Author(s)

Jean-Pierre Drugeon, Bertrand Wigniolle

Journal
  • Economic Theory
Date of publication
  • 2021
Keywords JEL
E32 E62
Keywords
  • Heterogeneities
  • Hyperbolic discounting
  • Markovian strategies
  • Collective choice
Pages
  • 1257-1296
Version
  • 1
Volume
  • 72