An Economic Theory of Self-Control

Richard H. Thaler Cornell University
H. M. Shefrin, University of Santa Clara 

The concept of self-control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization. The individual at a point in time is assumed to be both a farsighted planner and a myopic doer. The resulting conflict is seen to be funda­mentally similar to the agency conflict between the owners and managers of a firm. Both individuals and firms use the same tech­niques to mitigate the problems which the conflicts create. This paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving, saving and the timing of income flows, and individual discount rates. 

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