TY  - JOUR
AU  - Amador,Manuel
AU  - Werning,Ivan
AU  - Angeletos,George-Marios
TI  - Commitment Vs. Flexibility
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10151
PY  - 2003
Y2  - December 2003
UR  - http://www.nber.org/papers/w10151
L1  - http://www.nber.org/papers/w10151.pdf
N1  - Author contact info:
Manuel Amador
Stanford University
Department of Economics
Landau Economics Building
579 Serra Mall, Room 330
Stanford , CA 94305-6072
Tel: 650/725-5257
E-Mail: amador@stanford.edu

Ivan Werning
Department of Economics
MIT
50 Memorial Drive, E51-251a
Cambridge, MA 02142-1347
Tel: 617/452-3662
Fax: 617/253-1330
E-Mail: iwerning@mit.edu

George-Marios Angeletos
Department of Economics
MIT E52-251
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/452-3859
Fax: 617/253-1330
E-Mail: angelet@mit.edu
AB  - This paper studies the optimal trade-off between commitment and flexibility in an intertemporal consumption/savings choice model. Individuals expect to receive relevant information regarding their own situation and tastes - generating a value for flexibility - but also expect to suffer from temptations - generating a value for commitment. The model combines the representations of preferences for flexibility introduced by Kreps (1979) with its recent antithesis for commitment proposed by Gul and Pesendorfer (2002), which nests the hyperbolic discounting model. We set up and solve a mechanism design problem that optimizes over the set of consumption/saving options available to the individual each period. We characterize the conditions under which the solution takes a simple threshold form where minimum savings policies are optimal. Our analysis is also relevant for other issues such as situations with externalities or the problem faced by a 'paternalistic' planner, which may be important for thinking about some regulations such as forced minimum schooling laws.
ER  -