Long-term contracting with time-inconsistent agents

Gottlieb, Daniel ORCID: 0000-0002-0555-6185 and Zhang, Xingtan (2021) Long-term contracting with time-inconsistent agents. Econometrica, 89 (2). 793 - 824. ISSN 0012-9682

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Abstract

We study contracts between naive present-biased consumers and risk-neutral firms. We show that the welfare loss from present bias vanishes as the contracting horizon grows. This is true both when bargaining power is on the consumers’ and on the firms’ side, when consumers cannot commit to long-term contracts, and when firms do not know the consumers’ naiveté. However, the welfare loss from present bias does not vanish when firms do not know the consumers’ present bias or when they cannot offer exclusive contracts.

Item Type:	Article
Official URL:	https://onlinelibrary.wiley.com/journal/14680262
Additional Information:	© 2021 The Authors
Divisions:	Management
Subjects:	H Social Sciences > HB Economic Theory
Date Deposited:	25 Sep 2020 09:21
Last Modified:	30 Nov 2024 01:03
URI:	http://eprints.lse.ac.uk/id/eprint/106622

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