Resolving Intertemporal Conflicts: Economics vs Politics

46 Pages Posted: 24 Nov 2014 Last revised: 28 Jan 2023

See all articles by Antony Millner

Antony Millner

London School of Economics & Political Science (LSE)

Geoffrey M. Heal

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER)

Date Written: November 2014

Abstract

Intertemporal conflicts occur when a group of agents with heterogeneous time preferences must make a collective decision about how to manage a common asset. How should this be done? We examine two methods: an 'Economics' approach that seeks to implement efficient allocations, and a 'Politics' approach in which agents vote over consumption plans. We compare these methods by varying two characteristics of the problem: are agents' preferences known or are they hidden information, and can they commit to intertemporal collective plans or not? We show that if commitment is possible the Economics approach always Pareto dominates the Politics approach, in both full and hidden information scenarios. By contrast, without commitment the group may be better off if the Politics approach is adopted. We investigate when Politics trumps Economics analytically, and then apply our model to a survey of economists' views on the appropriate pure rate of time preference for project appraisal. For a wide range of model parameters, and under both full and hidden information, the Politics approach is supported by a majority of agents, and leads to higher group welfare.

Suggested Citation

Millner, Antony and Heal, Geoffrey M., Resolving Intertemporal Conflicts: Economics vs Politics (November 2014). NBER Working Paper No. w20705, Available at SSRN: https://ssrn.com/abstract=2529878

Antony Millner (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Geoffrey M. Heal

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States
212-854-6459 (Phone)
212-316-9219 (Fax)

HOME PAGE: http://www.gsb.columbia.edu/faculty/gheal/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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