Collective choice with heterogeneous time preferences

Abstract

This paper reviews recent research on the aggregation of heterogeneous time preferences. Main results are illustrated in simple Ramsey models with two or three agents who differ in their discount factors. We employ an intertemporal view on these models and argue that preferences of a decision maker should be represented by a sequence of utility functions. This allows us to clarify the issue of dynamic inconsistency and relate it to simple properties of discounting. We distinguish between private and common consumption cases. In the private consumption case, we discuss the properties of sequences of Paretian social welfare functions and explain why the notion of Pareto optimality under heterogeneous time preferences becomes problematic. In the common consumption case, we focus on the problem of collective choice under heterogeneous time preferences, discuss the difficulties with dynamic voting procedures and review some ways to overcome them. We conclude by highlighting the implications of our discussion for the problem of choosing an appropriate social discount rate.

Temptation and self‐control for the impure benevolent planner: The case of heterogeneous discounting

“…To illustrate the point, consider the following example which is common in the macroeconomics literature regarding the existence of a representative agent under heterogeneous time preferences (see Pakhnin (2023) for a survey). There is 1 unit of consumption good at each period, and there are two individuals, A and B.…”

Heterogeneous Bequests and Social Inequalities

“…brecht et al (2006) and Borissov and Kalk (2020).8 See alsoPakhnin (2023) for the discussion of similar problems with social welfare under heterogeneous time preferences.…”