Estimating Discount Functions with Consumption Choices over the Lifecycle


David Laibson, Sean Chanwook Lee, Peter Maxted, Andrea Repetto, and Jeremy Tobacman. In Preparation. “Estimating Discount Functions with Consumption Choices over the Lifecycle”.


This paper estimates time preferences using a structural lifecycle consumption-saving model. The model includes stochastic labor income, liquid and illiquid assets, revolving credit, child and adult dependents, bequests, and discount functions that allow short-term and long-term discount rates to differ. Data on wealth accumulation and credit card borrowing over the lifecycle identify the parameters in the model. In almost all specifications we reject the restriction to a constant discount factor (i.e., exponential discounting). Our benchmark estimates imply a short-term discount factor of beta=0.5 and a long-term annualized discount factor of delta=0.99.
Last updated on 10/29/2020