Journal
ECONOMIC JOURNAL
Volume 118, Issue 531, Pages 1418-1452Publisher
OXFORD UNIV PRESS
DOI: 10.1111/j.1468-0297.2008.02175.x
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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.
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