Time consistency and time invariance in collective intertemporal choice

Antony Millner,Geoffrey Heal

doi:10.1016/j.jet.2018.03.002

Antony Millner, Geoffrey Heal

Open Access

https://doi.org/10.1016/j.jet.2018.03.002

Copy DOI

Abstract

Recent work on collective intertemporal choice suggests that non-dictatorial social preferences are generically time inconsistent. We argue that this claim conflates time consistency with two distinct properties of preferences: stationarity and time invariance. While time invariance and stationarity together imply time consistency, the converse does not hold. Although non-dictatorial social preferences cannot be stationary, they may be time consistent if time invariance is abandoned. If individuals are discounted utilitarians, revealed preference provides no guidance on whether social preferences should be time consistent or time invariant. Nevertheless, we argue that time invariant social preferences are often normatively and descriptively problematic.

Highlights

Many important decisions in economic life require groups of people with heterogeneous time preferences to implement a collective consumption plan
This paper argues that this finding is due to a conflation of time consistency with two a priori distinct properties of preferences: Stationarity and Time Invariance
We argue that time invariance is likely to be a problematic feature of social preferences – both normatively and descriptively – for within-group intertemporal choice

Summary

Introduction

Many important decisions in economic life require groups of people with heterogeneous time preferences to implement a collective consumption plan. Jackson and Yariv (2014, 2015), for example, show a necessary conflict between collective intertemporal choice and stationarity, but assume that social preferences must be time invariant. We show that if individuals have heterogeneous discount factors, and social preferences are utilitarian and non-dictatorial, these preferences may be time consistent or time invariant, but not both. Time invariance relates preferences at different histories, but is an altogether different property from time consistency It requires that preferences be independent of translations of the time axis – shifting preferences forwards or backwards in time has no effect on rankings of future consumption streams. T =0 where the sequence of utility functions {Uth(ct )} may be conditional on history h.4 Under this restriction, the definition of time consistency employed by these authors reduces to the conjunction of stationarity and time invariance.. If we abandon time invariance of social preferences, the possibility of time consistency remains open

Time consistent utilitarian social preferences

Time consistency or time invariance?

Implications for the empirical literature