Reference-Dependent Consumption with Endogenous Labor Supply ()
Abstract
This paper investigates
time-consistent plans by incorporating the reference-dependent consumption
model with endogenous labor supply. To what extent these plans can help the
consumer overcome the double self-control problems of over-consumption and
late-retirement is discussed. The consumption level and labor supply of the
preferred personal equilibrium solution are compared with those of ex-ante
optimal solution and present-biased solution. For all preferred personal
equilibrium plans, both consumption level and labor supply are lower than those
of the consumer who is present-biased but without reference-dependent
preference. Although the preferred personal equilibrium solutions do not
include the ex-ante optimal level, they help mitigate the welfare loss caused
by present bias.
Share and Cite:
Zhang, L. (2015) Reference-Dependent Consumption with Endogenous Labor Supply.
Theoretical Economics Letters,
5, 503-508. doi:
10.4236/tel.2015.54059.
Conflicts of Interest
The authors declare no conflicts of interest.
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