| This dissertation is comprised of three essays that study intertemporal choice problems when individuals have present-biased preferences. This preference structure represents a self-control problem that occurs when people behave differently at the moment of decision than they would have preferred if asked from a prior perspective. Present-biased individuals give greater weight to immediate payoffs than their “long-run” time-consistent self would prefer.; The first essay examines a mechanism design problem in which the principal owns a project which requires work effort by an agent, but agents may have unobservable present-biased preferences. Agents with present-biased preferences value future effort and payoffs differently at the time of agreeing to a contract than when they must choose their effort, which leads to a second-best outcome for the principal if he hires an agent. Alternatively, the principal can sell the project to an agent, but this too is an imperfect solution since the principal bears the cost when such a sale leads to inefficient ownership.; The second essay studies the impact of present-biased preferences on search behavior. The cost of searching in each period is assumed to be stochastic. In this setting it is shown that it is optimal to delay search in periods when the realized cost of doing so is high. However, a present-biased individual will procrastinate: that is, delay at times when it is not optimal to do so. This behavior increases expected search duration and reduces the expected payoff from the search process.; The final essay explores whether present-biased preferences can explain the presence of mail-in rebates in retail markets. A simple selling model demonstrates that a seller may exploit a buyer's present-biased preferences to obtain greater revenue through the use of a rebate. This result hinges on the buyer's naïveté, or lack of awareness of his self-control problem, which leads him to purchase a good in the expectation of submitting a rebate, but later fail to do so. The model demonstrates that rebates may exist in the equilibrium of a competitive market, and the conditions under which rebates will be superior to coupons as a mechanism for price discrimination. |
