{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture 10

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

This preview shows pages 1–7. Sign up to view the full content.

Economics 101A (Lecture 10) Stefano DellaVigna September 29, 2009

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Outline 1. Application 2: Intertemporal choice 2. Application 3: Altruism and charitable donations
1 Intertemporal choice Nicholson Ch. 17, pp. 597-601 (502—506, 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 0 , consumption c 0 at price p 0 = 1 t = 1 : income M 1 > M 0 , consumption c 1 at price p 1 = 1 Credit market available: can lend or borrow at inter- est rate r

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Budget constraint in period 1? Sources of income: M 1 ( M 0 c 0 ) (1 + r ) (this can be negative) Budget constraint: c 1 M 1 + ( M 0 c 0 ) (1 + r ) or c 0 + 1 1 + r c 1 M 0 + 1 1 + r M 1
Utility function? Assume u ( c 0 , c 1 ) = U ( c 0 ) + 1 1 + δ U ( c 1 ) U 0 > 0 , U 00 < 0 δ is the discount rate Higher δ means higher impatience Elicitation of δ through hypothetical questions Person is indi ff erent between 1 hour of TV today and 1 + δ hours of TV next period

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Maximization problem: max U ( c 0 ) + 1 1 +
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}