%0 Journal Article
%T Optimal Operations of Entrepreneurial Firms under Time-Inconsistent Preferences
%A Du Du
%J Journal of Mathematical Finance
%P 430-459
%@ 2162-2442
%D 2024
%I Scientific Research Publishing
%R 10.4236/jmf.2024.144025
%X While standard models in finance assume that an agent possesses a constant rate of time preferences, there is substantial evidence that people are impatient about choices in the short term but are patient when choosing between long-term alternatives. In this paper, we analyze the impact of the resulting time-inconsistent preferences (TIP) on operations of entrepreneurial firms. We differentiate a naive vs. a sophisticated entrepreneur depending on the different expectations regarding her future time-inconsistent behaviors. Relative to the time-consistent benchmark, a naive entrepreneur assigns a lower firm valuation, derives a lower welfare, liquidates the firm earlier, and in general adopts more conservative firm-level policies. Somewhat surprisingly, a time-inconsistent entrepreneur’s sophistication destroys instead of creating values for herself under which she obtains a even lower welfare from the firm. In response, the sophisticated entrepreneur transfers resources from investment to consumption and liquidates the firm even earlier than in the case with a naive entrepreneur.
%K Constant Rate of Time Preferences
%K Time-Inconsistent Preference
%K Entrepreneur&#8217
%K s Sophistication
%K Intra-Personal Competition
%K Stationary Equilibrium
%U http://www.scirp.org/journal/PaperInformation.aspx?PaperID=137705