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Efficiency and equilibrium when preferences are time-inconsistent |
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| Authors: | Erzo GJ Luttmer Thomas Mariotti |
| Institution: | a Department of Economics, University of Minnesota, 1035 Heller Hall, 271 19th Avenue South, Minneapolis MN 55455, USA b Federal Reserve Bank of Minneapolis, USA c Université de Toulouse I, GREMAQ (UMR CNRS 5604) and IDEI, 21 Allée de Brienne, 31000 Toulouse, France d Department of Economics, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, UK e Centre for Economic Policy Research, London, UK |
| Abstract: | We consider an exchange economy with time-inconsistent consumers whose preferences are additively separable. If consumers have identical discount factors, then allocations that are Pareto efficient at the initial date are also renegotiation-proof. In an economy with a sequence of markets, competitive equilibria are Pareto efficient in this sense, and for generic endowments, only if preferences are locally homothetic. |
| Keywords: | D51 D60 D91 |
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