Abstract
In this study, we investigates the time-inconsistent agent's optimal consumption, life insurance purchase, and investment decisions under a tax system. We find analytically that the marginal propensity to consume (MPC) for the time-inconsistent (naïve or sophisticated) agent is larger than that of the time-consistent agents. Based on the numerical results, we show that the time-inconsistent preferences result in a lower demand for life insurance, which may explain why people purchase insufficient life insurance. Further, the sophisticated agent reacts more sensitively to an insurance tax rate increase than the time-consistent agent.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
