Lecture 10 - Economics 101A (Lecture 10) Stefano DellaVigna...

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Unformatted text preview: Economics 101A (Lecture 10) Stefano DellaVigna September 29, 2009 Outline 1. Application 2: Intertemporal choice 2. Application 3: Altruism and charitable donations 1 Intertemporal choice Nicholson Ch. 17, pp. 597-601 (502506, 9th) So far, we assumed people live for one period only Now assume that people live for two periods: t = 0 people are young t = 1 people are old t = 0 : income M , consumption c at price p = 1 t = 1 : income M 1 > M , consumption c 1 at price p 1 = 1 Credit market available: can lend or borrow at inter- est rate r Budget constraint in period 1? Sources of income: M 1 ( M c ) (1 + r ) (this can be negative) Budget constraint: c 1 M 1 + ( M c ) (1 + r ) or c + 1 1 + r c 1 M + 1 1 + r M 1 Utility function? Assume u ( c , c 1 ) = U ( c ) + 1 1 + U ( c 1 ) U > , U 00 < is the discount rate Higher means higher impatience Elicitation of through hypothetical questions Person is indi f erent between 1 hour of TV today and 1 + hours of TV next period...
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Lecture 10 - Economics 101A (Lecture 10) Stefano DellaVigna...

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