Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Mar, 2021, Volume 89, Issue 2

Long-Term Contracting with Time-Inconsistent Agents
p. 793-824

Daniel Gottlieb, Xingtan Zhang

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.

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Supplement to "Long-Term Contracting with Time-Inconsistent Agents"

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