NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Identification of Time-Inconsistent Models: The Case of Insecticide Treated Nets

Aprajit Mahajan, Christian Michel, Alessandro Tarozzi

NBER Working Paper No. 27198
Issued in May 2020
NBER Program(s):Development Economics, Health Economics, Industrial Organization

Time-inconsistency may play a central role in explaining inter-temporal behavior, particularly among poor households. However, little is known about the distribution of time-inconsistent agents, and time-preference parameters are typically not identified in standard dynamic choice models. We formulate a dynamic discrete choice model in an unobservedly heterogeneous population of possibly time-inconsistent agents. We provide conditions under which all population type probabilities and preferences for both time-consistent and sophisticated agents are point-identified and sharp set-identification results for naïve and partially sophisticated agents. Estimating the model using data from a health intervention providing insecticide treated nets (ITNs) in rural Orissa, India, we find that time-inconsistent agents account for almost 80 percent of our sample and that sophisticated and naïve agents are considerably present-biased. Counterfactuals show that the under-investment in ITNs attributable to present-bias leads to substantial costs that are about six times the price of an ITN.

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Document Object Identifier (DOI): 10.3386/w27198

 
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