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 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 Business and Public Policy Department 1459 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 -