TY  - JOUR
AU  - Bhattacharya,Jay
AU  - Lakdawalla,Darius
TI  - Time-Inconsistency and Welfare
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10345
PY  - 2004
Y2  - March 2004
UR  - http://www.nber.org/papers/w10345
L1  - http://www.nber.org/papers/w10345.pdf
N1  - Author contact info:
Jay Bhattacharya
117 Encina Commons
Center for Primary Care
and Outcomes Research
Stanford University
Stanford, CA  94305-6019
Tel: 650/736-0404
Fax: 650/723-1919
E-Mail: jay@stanford.edu

Darius N. Lakdawalla
Schaeffer Center for Health Policy and Economics
University of Southern California
3335 S. Figueroa St, Unit A
Los Angeles, CA 90089-7273
Tel: 213/740-6012
E-Mail: dlakdawa@healthpolicy.usc.edu
AB  - Self-control devices, such as rehabilitation programs, group commitment, and informal fines, can make time-inconsistent smokers better off. Health economists have used this result to argue in favor of cigarette taxes that restrain smoking. However, taxes alone are not Pareto-improving overall, because they benefit today's smoker at the expense of her future selves, who have less demand for self-control. We suggest an alternative class of taxation policies that provide selfcontrol and benefit a smoker at every point in life. Smokers could be allowed to purchase  smoking licenses' when they start to smoke, and in exchange commit their future selves to face compensated cigarette taxes. We show that this scheme   which could be made voluntary improves the welfare of current and future smokers, generates positive revenue for the government, and can be made incentive-compatible. Similar schemes can also be envisioned to address problems of timeinconsistency in other contexts.
ER  -