On the time consistency of collective preferences

TL;DR

This paper develops a dynamic model of collective decision-making with agents having different discount rates, showing that collective preferences can be nonstationary yet time consistent due to time-varying utility weights.

Contribution

It introduces a model where collective preferences remain time consistent despite nonstationarity, highlighting the role of time-varying utility weights in group decision-making.

Findings

Collective preferences can be nonstationary but still time consistent.

Time-varying utility weights are crucial for balancing consumption distribution and fluctuations.

The model applies under standard separability assumptions.

Abstract

A dynamic model of collective consumption and saving decisions made by a finite number of agents with constant but different discount rates is developed. Collective utility is a weighted sum of individual utilities with time-varying utility weights. Under standard separability assumptions, it is shown that collective preferences may be nonstationary but still satisfy time consistency. The assumption of time-varying weights is key to balance the need of the group for a changing distribution of consumption among its members over time with their tolerance for consumption fluctuations.