Abstract

People are partially time inconsistent and many have difficulties committing to a detailed schedule for a project. I study optimal interim deadlines and how they affect the behavior and resulting welfare of the present-biased agent. I consider a model in which there are three types of agent in terms of how the agent understands her present bias: naïve, sophisticated, and partially-sophisticated. For each type, there is a unique design for an exogenous interim deadline that maximizes the agent's welfare. However, only the sophisticated agent would self-impose an optimal interim deadline, while the naïve agent would not apply a self-imposed deadline at all. The partially-sophisticated agent sets a nonoptimal self-imposed deadline and can even decrease her own welfare by imposing it. The main result is that the partially-sophisticated agent who is relatively less present-biased would decrease her own welfare by using a self-imposed deadline, and the partially-sophisticated agent who is relatively more present-biased would increase her welfare given the same degree of sophistication.

Abstract

People are time-inconsistent and tend to procrastinate during the working day. We study the effect of procrastination on electricity demand changes throughout the day and consequently on the environment. We show that an agent with time-inconsistent preferences shifts a substantial amount of effort toward the end of the working day. To compensate, the agent continues working during the evening and increases electricity demand during the dark hours. In many countries, especially developing ones, the peaks of electricity demand in the evening are covered by using fossil fuel sources, such as natural gas and coal. As a result, the agent's behavior negatively affects the environment. We use a model with a present-biased agent, calibrate it on data, and estimate the effect.

Abstract

We explore removing trade barriers. As a historical example, we consider merchants who must pay a landlord (the Lord) for crossing his land and obtaining access to a market. The Lord controls how many merchants will cross his land by imposing a level of toll payment. On the other side, a central authority (the King) is interested in social welfare and thus is inclined to eliminate this barrier. We show that the Lord relaxes the barriers and allows more merchants to reach the market under the threat of conflict from the King. However, the Lord allows only a few merchants to cross, keeping a significant restriction on trade. At the same time, the King's probability of winning the conflict and removing barriers is always lower than 1/5. The presence of several Lords on the same road leads to the monopoly with a probability of 2/3 and to the duopoly with a probability of 1/3. The situation changes rapidly only when several roads are present and Lords have to compete with each other in tolls. The Lords voluntarily remove the barriers and allow all merchants to reach the market.

Abstract

I study optimal interim deadlines in the context of procrastination and multiple simultaneous projects. While deadlines are well studied in the context of single and repeated projects, the spillover effects of deadlines are understudied. I consider a model in which the present-biased agent pursues two simultaneous projects under one exogenous interim deadline in each project. I study how the design for interim deadlines affects the agent's behavior and welfare and characterize the optimal design that maximizes the agent's welfare. I find that the spillover effects of deadlines significantly affect the optimal design for interim deadlines. Specifically, given two symmetric projects, it is not optimal to symmetrically generalize the optimal design for an interim deadline in the case of one project, while it is optimal to impose interim deadlines sequentially: first in one project, then in another.