Job Search and Hyperbolic Discounting: Structural Estimation and Policy Evaluation

Author: Paserman, M. Daniele

Source: The Economic Journal, Volume 118, Number 531, August 2008 , pp. 1418-1452(35)

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Abstract:

This article estimates the degree of hyperbolic discounting in a job search model quantitatively, using data on unemployment spells and accepted wages from the NLSY. The results point to a substantial degree of hyperbolic discounting for low and medium wage workers. The structural estimates are then used to evaluate alternative policy interventions aimed at reducing unemployment. The estimated effects of a given policy can vary by up to 40%, depending on the assumed type of time discounting. Some interventions may raise the long-run utility of hyperbolic workers, and at the same time reduce unemployment duration and lower government expenditures.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1468-0297.2008.02175.x

Affiliations: 1: Boston University, Boston and Hebrew University, Jerusalem

Publication date: 2008-08-01