How time-inconsistent preferences influence venture capital exit decisions? A new perspective for grandstanding

Considering that the assumption of time consistency does not adequately reveal the mechanisms of exit decisions of venture capital (VC), this study proposes two kinds of time-inconsistent preferences (i.e., time-flow inconsistency and time-point inconsistency) to advance research in this field. Time-flow inconsistency is in line with the previous time inconsistency literature, while time-point inconsistency is rooted in the VC fund’s finite lifespan. Based on the assumption about the strategies guiding future behaviors, we consider four types of venture capitalists: time-consistent, time-point-inconsistent, naïve, and sophisticated venture capitalists, of which the latter three are time-inconsistent. We derive and compare the exit thresholds of these four types of venture capitalists. The main results include: (1) time-inconsistent preferences accelerate the exits of venture capitalists; (2) the closer the VC funds expiry dates are, the more likely time-inconsistent venture capitalists are to accelerate their exits; and (3) future selves caused by time-flow inconsistency weaken the effect of time-point inconsistency. Our study provides a behavioral explanation for the empirical fact of young VCs’ grandstanding.

Environmental Regulation of Firms that Experience Dynamic Inconsistency

<p>The recent push for environmental regulation has invigorated the discussion of mechanism design and optimal taxation policy. Recent decades have also seen growing interest in behavioural economics and empirically based theory. In this thesis we take a step towards combining the two by asking how a regulator may correct an externality in situations where they have a time consistency problem. Time inconsistency is one of the notable developments of behavioural economics. It posits that an agent’s decisions do not remain consistent over time, which causes a utility loss if the agent cannot commit themselves to a particular course of action and stick to it. The solution to inconsistency problems is to precommit to a course of action and prevent future deviations from it. However, finding a mechanism to enable such precommitment is often problematic. A regulator who maximises welfare can have a time consistency problem because welfare will depend on the decisions of firm and households who may themselves be inconsistent. That inconsistency then propagates to the regulator’s decision and reduces the level of welfare that the regulator can reach. Alternatively, the regulator’s time consistency problem can be caused by non-stationarity in their time preferences. To reach the firstbest outcome the regulator must not only eliminate the environmental externality: they must also overcome their own time inconsistency problem. This thesis draws from the literature on strategic delegation to construct a taxation game in which the regulator can achieve the first best taxation regime without the need for external precommitment devices. We study a dynamic game where the regulator chooses a tax rate and the regulated monopolist chooses their price. We show that the Markov-perfect equilibrium price path of this game will replicate the first best plan. Our results holds for time inconsistency caused by both jump states and quasihyperbolic discounting.</p>

Environmental Regulation of Firms that Experience Dynamic Inconsistency

<p>The recent push for environmental regulation has invigorated the discussion of mechanism design and optimal taxation policy. Recent decades have also seen growing interest in behavioural economics and empirically based theory. In this thesis we take a step towards combining the two by asking how a regulator may correct an externality in situations where they have a time consistency problem. Time inconsistency is one of the notable developments of behavioural economics. It posits that an agent’s decisions do not remain consistent over time, which causes a utility loss if the agent cannot commit themselves to a particular course of action and stick to it. The solution to inconsistency problems is to precommit to a course of action and prevent future deviations from it. However, finding a mechanism to enable such precommitment is often problematic. A regulator who maximises welfare can have a time consistency problem because welfare will depend on the decisions of firm and households who may themselves be inconsistent. That inconsistency then propagates to the regulator’s decision and reduces the level of welfare that the regulator can reach. Alternatively, the regulator’s time consistency problem can be caused by non-stationarity in their time preferences. To reach the firstbest outcome the regulator must not only eliminate the environmental externality: they must also overcome their own time inconsistency problem. This thesis draws from the literature on strategic delegation to construct a taxation game in which the regulator can achieve the first best taxation regime without the need for external precommitment devices. We study a dynamic game where the regulator chooses a tax rate and the regulated monopolist chooses their price. We show that the Markov-perfect equilibrium price path of this game will replicate the first best plan. Our results holds for time inconsistency caused by both jump states and quasihyperbolic discounting.</p>

VERIFICATION OF TACTICAL AND TECHNICAL DATA OF THE BREATHING APPARATUS

The function of the breathing apparatus is to protect the health of firefighters in a harmful and non-respirable environment. Closed-circuit breathing apparatus provides members of the Fire and Rescue Service with respiratory protection in the elimination of adverse events in tunnels and underground spaces. The MSA 4h Air Elite is a four-hour self-contained breathing apparatus that operates on the principle of generating oxygen by an exothermic reaction of potassium hyperoxide. Each breathing apparatus has its tactical technical parameters. We verified the tactical and technical data of the MSA AIRE ELITE by the experiment they participated in the firefighter. Each firefighter was equally coupled. An MSA Air Elite was used during the experiment. Tactical-technical data reported by the manufacturer varies in some points with the practical results that we have managed to obtain. The manufacturer's largest deviations in tactical and technical data and practical results are mainly in the length of work activity, temperature in use in intervention, and air consumption. According to our experiment, the MSA 4h Air Elite breathing apparatus does not last in the working activity 240 minutes as it discloses a manufacturer, but on the other hand, this time-inconsistency may be caused by the intensity of training and demanding of the training track.

Dynamic Optimal Mean-Variance Investment with Mispricing in the Family of 4/2 Stochastic Volatility Models

This paper considers an optimal investment problem with mispricing in the family of 4/2 stochastic volatility models under mean–variance criterion. The financial market consists of a risk-free asset, a market index and a pair of mispriced stocks. By applying the linear–quadratic stochastic control theory and solving the corresponding Hamilton–Jacobi–Bellman equation, explicit expressions for the statically optimal (pre-commitment) strategy and the corresponding optimal value function are derived. Moreover, a necessary verification theorem was provided based on an assumption of the model parameters with the investment horizon. Due to the time-inconsistency under mean–variance criterion, we give a dynamic formulation of the problem and obtain the closed-form expression of the dynamically optimal (time-consistent) strategy. This strategy is shown to keep the wealth process strictly below the target (expected terminal wealth) before the terminal time. Results on the special case without mispricing are included. Finally, some numerical examples are given to illustrate the effects of model parameters on the efficient frontier and the difference between static and dynamic optimality.

Who Chooses Commitment? Evidence and Welfare Implications

This paper investigates whether offers of commitment contracts, in the form of self-imposed choice-set restrictions and penalties with no financial upside, are well-targeted tools for addressing self-control problems. In an experiment on gym attendance (N = 1,248), we examine take-up of commitment contracts, and also introduce a separate elicitation task to identify actual and perceived time inconsistency. There is high take-up of commitment contracts for greater gym attendance, resulting in significant increases in exercise. However, this is take-up is influenced both by noisy valuation and incorrect beliefs about one’s time inconsistency. Approximately half of the people who take up commitment contracts for higher gym attendance also take up commitment contracts for lower gym attendance. There is little association between commitment contract take-up and reduced-form and structural estimates of actual or perceived time inconsistency. A novel information treatment providing an exogenous shock to awareness of time inconsistency reduces demand for commitment contracts. Structural estimates of a model of quasi-hyperbolic discounting and gym attendance imply that offering our commitment contracts lowers consumer surplus, and is less socially efficient than utilizing linear exercise subsidies that achieve the same average change in behavior.

Electoral competition and the party politics of public investments

When do political parties propose long-term investments? Electoral competitiveness should be a key variable explaining parties’ investment priorities: parties can be less responsive to voters’ short-term priorities and overcome time inconsistencies when they are more likely to win the next election. The article distinguishes the characteristics of three types of investments in education, environmental protection and technology and infrastructure, gathered from the Comparative Manifesto Project. It finds a linear positive relationship between parties’ probability of entering office and the proportion of manifestoes allocated to statements about technology and infrastructure. In contrast, statements about education are highest at high levels of electoral competitiveness, as parties propose more education to attract voters, while statements about the environment are affected by parties’ ideology on the left-right axis rather than by electoral competitiveness. Power-sharing institutions help parties to overcome time inconsistency problems, reducing the impact of electoral competition on investments.