INCOME SMOOTHING AND SELF-CONTROL: THE CASE OF SCHOOLTEACHERS |
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| Authors: | Thomas Mayer Thomas Russell |
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| Institution: | Mayer:;Emeritus Professor of Economics, Economic Department, University of California, 1 Shields Avenue, Davis, CA 95616-8678. Phone (510) 549-0504, E-mail Russell:;Associate Professor of Economics, Leavey School of Business, Santa Clara University. Phone (408) 554-6953, Fax (408) 554-2331, E-mail |
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| Abstract: | Approximately one-half of California's Unified School Districts give teachers a choice of receiving their annual salaries in 10 or 12 monthly payments. Intertemporal utility maximization à la Irving Fisher suggests that they should choose 10 payments and earn interest on their savings. But about 50% of the teachers choose 12 installments, even though when summed over a reasonable period the forgone interest can be considerable. This behavior can be explained by the cost of exercising self-control and by Laibson's model of hyperbolic discounting. A survey of teachers supports this interpretation. (JEL D91 , D12 ) |
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