DP10458 Collective Self Control

Author(s): Alessandro Lizzeri, Leeat Yariv
Publication Date: March 2015
Keyword(s): behavioral political economy, hyperbolic discounting, time inconsistency
JEL(s): D04, D70, H1
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10458

Behavioral economics presents a "paternalistic" rationale for a benevolent government's intervention. We consider an economy where the only ?distortion? is agents? time inconsistency. We study the desirability of various forms of collective action, ones pertaining to costly commitment and ones pertaining to the timing of consumption, when government decisions respond to voters? preferences via the political process. If only commitment decisions are centralized, commitment investment is more moderate than if all decisions are centralized. Commitment investment is minimal when only consumption is centralized. First-period welfare is highest under either full centralization or laissez faire, depending on the populations? time-inconsistency distribution.