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Andrew G. Meyer
''Explaining the fixed cost component of discounting: the importance of students' liquidity constraints''
( 2016, Vol. 36 No.1 )
Utilizing experimental data on choices over real monetary rewards made by university students, we provide evidence that two measures of liquidity, income and employment status, significantly explain differences in patterns of discounting. We find an average fixed cost component of discounting in the range of $5 for unemployed students and near $0 for employed students. An increase in annual disposable income of $1000 decreases the fixed cost component of discounting by approximately $0.20 to $0.25. These findings can help resolve the puzzle that some studies in the literature find evidence of present-bias and magnitude effects and some do not.
Keywords: discounting, experiments, time preferences, present bias
JEL: D9 - Intertemporal Choice and Growth: General
C9 - Design of Experiments: General
Manuscript Received : Nov 09 2015 Manuscript Accepted : Mar 17 2016

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