How the market responds to dynamically inconsistent preferences

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Abstract

This paper responds to the ‘soft paternalist’ argument that the findings of behavioural economics make traditional objections to paternalism incoherent. We show that there is a normatively significant sense in which, even if individuals lack coherent preferences, competitive markets are efficient in providing them with opportunities to get what they want. Extending earlier analysis by Sugden, we model a multi-period ‘storage economy’ and explore the implications of dynamically inconsistent preferences. We show that, despite apparent conflicts of judgement between an individual’s ‘selves’, competitive markets provide maximal opportunity, and that they do so by facilitating voluntary exchanges between selves.
Original languageEnglish
Pages (from-to)617-634
Number of pages18
JournalSocial Choice and Welfare
Volume38
Issue number4
Early online date16 Dec 2011
DOIs
Publication statusPublished - Apr 2012

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