Explaining the Fixed Cost Component of Discounting: The Importance of Students' Liquidity Constraints

Authors

Andrew G. Meyer, Marquette UniversityFollow

Document Type

Article

Language

eng

Format of Original

10 p.

Publication Date

3-2016

Publisher

Economics Bulletin

Source Publication

Economics Bulletin

Source ISSN

1545-2921

Abstract

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.

Comments

Published version. Economics Bulletin, Vol. 36, No. 1 (March 2016): 355-364. Permalink. © 2016 Economics Bulletin. Used with permission.

Recommended Citation

Meyer, Andrew G., "Explaining the Fixed Cost Component of Discounting: The Importance of Students' Liquidity Constraints" (2016). Economics Faculty Research and Publications. 547.
https://epublications.marquette.edu/econ_fac/547