Jaime Alonso Carrera, Stéphane Philippe Bouché
This paper analyzes how temptations and costly self-control ináuence consumerís decisions on savings and the accumulation of wealth along the life-cycle. We consider an overlapping generations model where individuals are tempted to take the average consumption of agents living in the same period as their own aspiration or consumption reference. In addition, consumers also exhibit a preference for selfcontrol.
Therefore, they face a self-control problem and the degree of this problem is endogenously determined by the aggregate allocation of resources. We show that temptation and costly self-control may either increase or decrease the accumulation of capital. The crucial point would be whether or not consumers take the consumption of the individuals belonging to the other living generations as a determinant of their consumption reference. This point also a§ects the stability and welfare properties of the competitive equilibrium. In particular, we obtain that multiple equilibrium paths may exist and that consumption externalities may lead the capital stock to be either suboptimally small or large.
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