TY - JOUR
AU - Laibson,David
AU - Repetto,Andrea
AU - Tobacman,Jeremy
TI - Estimating Discount Functions with Consumption Choices over the Lifecycle
JF - National Bureau of Economic Research Working Paper Series
VL - No. 13314
PY - 2007
Y2 - August 2007
DO - 10.3386/w13314
UR - http://www.nber.org/papers/w13314
L1 - http://www.nber.org/papers/w13314.pdf
N1 - Author contact info:
David Laibson
Department of Economics
Littauer M-12
Harvard University
Cambridge, MA 02138
Tel: 617/496-3402
Fax: 617/495-8570
E-Mail: dlaibson@gmail.com
Andrea Repetto
University of Chile
E-Mail: no email available
Jeremy Tobacman
Department of Business Economics and Public Policy
1409 Steinberg Hall-Dietrich Hall
3620 Locust Walk
The Wharton School
University of Pennsylvania
Philadelphia, PA 19104-6372
Tel: 215/898-9450
Fax: 215/898-7635
E-Mail: tobacman@wharton.upenn.edu
AB - Intertemporal preferences are difficult to measure. We estimate time preferences using a structural buffer stock consumption model and the Method of Simulated Moments. The model includes stochastic labor income, liquidity constraints, child and adult dependents, liquid and illiquid assets, revolving credit, retirement, and discount functions that allow short-run and long-run discount rates to differ. Data on retirement wealth accumulation, credit card borrowing, and consumption-income comovement identify the model. Our benchmark estimates imply a 40% short-term annualized discount rate and a 4.3% long-term annualized discount rate. Almost all specifications reject the restriction to a constant discount rate. Our quantitative results are sensitive to assumptions about the return on illiquid assets and the coefficient of relative risk aversion. When we jointly estimate the coefficient of relative risk aversion and the discount function, the short-term discount rate is 15% and the long-term discount rate is 3.8%.
ER -