The Journal of Finance

Time‐Consistent Individuals, Time‐Inconsistent Households

Published: 10/16/2024   |   DOI: 10.1111/jofi.13392

ANDREW HERTZBERG

I present a model of consumption and savings for a multiperson household in which members are imperfectly altruistic, derive utility from both private and shared public goods, and share wealth. I show that, despite having standard exponential time preferences, the household is time‐inconsistent: Members save too little and overspend on private consumption goods. The household remains time‐inconsistent even when members save separately, because the possibility of voluntary transfers or joint contribution to the public good preserves the dynamic commons problem. The household will choose to share wealth when the risk‐sharing benefits outweigh the utility cost of overconsumption.

Public Information and Coordination: Evidence from a Credit Registry Expansion

Published: 03/21/2011   |   DOI: 10.1111/j.1540-6261.2010.01637.x

ANDREW HERTZBERG, JOSÉ MARÍA LIBERTI, DANIEL PARAVISINI

This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that forced lenders to share negative private assessments about their borrowers. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of other lenders' reaction to the negative news about the firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.

Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation

Published: 05/07/2010   |   DOI: 10.1111/j.1540-6261.2010.01553.x

ANDREW HERTZBERG, JOSE MARIA LIBERTI, DANIEL PARAVISINI

We present evidence that reassigning tasks among agents can alleviate moral hazard in communication. A rotation policy that routinely reassigns loan officers to borrowers of a commercial bank affects the officers' reporting behavior. When an officer anticipates rotation, reports are more accurate and contain more bad news about the borrower's repayment prospects. As a result, the rotation policy makes bank lending decisions more sensitive to officer reports. The threat of rotation improves communication because self‐reporting bad news has a smaller negative effect on an officer's career prospects than bad news exposed by a successor.