Long-Term Contracting with Time-Inconsistent Agents
Copyright policy )Long-Term Contracting with Time-Inconsistent Agents
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.
- University of Mary United States
- University of Colorado Boulder United States
- London School of Economics and Political Science United Kingdom
present bias, behavioral industrial organization, Contract theory (moral hazard, adverse selection), regulation, dynamic inconsistency
present bias, behavioral industrial organization, Contract theory (moral hazard, adverse selection), regulation, dynamic inconsistency
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