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David Laibson-April 28, 2014

*NOTE TIME CHANGE: Monday, April 28, 2014 from 2:30-3:45pm
Reception to immediately follow
Rm 5120 Grainger Hall (Capital Conference Room)

Self Control and Liquidity:
How to Design a Commitment Contract

John Beshears
Harvard University and NBER

James J. Choi
Yale University and NBER

Christopher Harris
University of Cambridge

David Laibson
Harvard University and NBER

Brigitte C. Madrian
Harvard University and NBER

Jung Sakong
University of Chicago

November 2, 2013

Abstract: If individuals have self-control problems that lead them to spend money that they had
previously planned to save, they may take up commitment contracts that restrict their spending. We experimentally investigate how the demand for commitment contracts is affected by contract
design. Each experimental subject receives an endowment of money and divides that money
between a liquid account, which permits unrestricted withdrawals, and a commitment account, which imposes a penalty on early withdrawals. The features of the liquid account are the same
for all subjects, but the features of the commitment account are randomized across subjects. The
commitment account that disallows early withdrawals—the most illiquid commitment account—
attracts more money than any other commitment account. We extend the theoretical work of
Amador, Werning, and Angeletos (2006) to show that the pattern of experimental commitment
account allocations arises in a leading model of intertemporal choice under natural assumptions.

Our last event of the academic year 
had a great turnout with 47 people in attendance:

Apr 21, 2014, 8:03 PM