Identification Of Time-Inconsistent Models: The Case Of Insecticide Treated Nets

Aprajit Mahajan, UC Berkeley, Christian Michel, Universitat Pompeu Fabra and Barcelona School of Economics, and Alessandro Tarozzi, European University Institute, Universitat Pompeu Fabra, Barcelona School of Economics and CEPR

Time-inconsistency may play a central role in explaining inter-temporal behavior, particularly among poor households. However, little is known about the distribution of time-inconsistent agents, and time-preference parameters are typically not identified in standard dynamic choice models. We formulate a dynamic discrete choice model in an unobservedly heterogeneous population of possibly time-inconsistent agents. We provide conditions under which all population type probabilities and preferences for both time-consistent and sophisticated agents are point-identified and sharp set-identification results for native and partially sophisticated agents. Estimating the model using data from a health intervention providing insecticide treated nets (ITNs) in rural Odisha, India, we find that about two-thirds of our sample comprises time-inconsistent agents and that both sophisticated and native agents are considerably present-biased. Counterfactuals show that the under-investment in ITNs attributable to present-bias leads to substantial costs that are about four times the price of an ITN.