Efficiency and equilibrium when preferences are time-inconsistent

Erzo G.J. Luttmer, Thomas Mariotti

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)493-506
Number of pages14
JournalJournal of Economic Theory
Volume132
Issue number1
DOIs
StatePublished - Jan 2007

Keywords

  • Competitive equilibrium
  • Pareto efficiency
  • Time-inconsistent preferences

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