Sometimes private commitment mechanisms are not available and that is where government intervention can help people to keep their promises to themselves.

I think this is generally untrue. Alcoholics have support groups and can buy therapy and read books and (I think) receive medication. Similar for smokers and gamblers. There is a demand for support and, entirely unsurprisingly, people have organised a supply of it.

NZIER is postulating a market failure of some kind but it isn’t clear a) why the array of supports for alcoholics and smokers and gamblers doesn’t count, or b) what is preventing people and organisations privately arranging whatever is missing. Does NZIER have any reason to expect a market failure? What barrier to private commitment do they see that requires government intervention? None that I can see.

The problem is that drinkers who keep trying to drink less but never do are probably not doing the best thing for themselves. That alcoholics often admit they would like to drink less in future just reinforces that notion. However, because they are unable to force themselves to drink less, they end up drinking far more than they want to.

If this behaviour is the product of hyperbolic discounting, why is this discounting ignored for the purpose of policy design? Why is a consumer’s undiscounted preferences considered policy-relevant when their utility and decisionmaking is calculated with discounting? It would be nice if NZIER could put forward a view on this – it is fundamental to the argument.

I never said there was. My post was solely saying that if there was a welfare loss stemming from an internality it could potentially be quantified in the face of the rejection of a voluntary commitment mechanism.

Now if it turns out the government can provide a cheaper commitment mechanism a policy intervention could help. And in the extreme case where there is only ridiculously expensive commitment mechanisms even a grossly misapplied tax could help.

Matt Nolan :
Now, we could tell which of these it is by offering you a voluntary commitment device which you can opt in to in order to buy your Rolls if you don’t trust yourself to save money sitting in your account. Like, a lay-by, or a hire-purchase agreement, or an employee retirement scheme.
If you take the scheme, then we know we’ve got a time inconsistency issue. If you don’t, then we know that either:
1) It is just an income issue and so doesn’t matter,
2) It is a time inconsistency issue, but the welfare loss is lower than the cost of joining the voluntary opt-in scheme.

Then where is the policy issue? Why is there any basis for government intervention here?

Possibly – it depends on my preference set.

Also I am not sure that the lack of buying a Rolls-Royce is a time-inconsistency issue, it is probably an issue of opportunity cost – namely, I am sure you are spending your money on products that offer you a higher lifetime return.

Now, we could tell which of these it is by offering you a voluntary commitment device which you can opt in to in order to buy your Rolls if you don’t trust yourself to save money sitting in your account. Like, a lay-by, or a hire-purchase agreement, or an employee retirement scheme.

If you take the scheme, then we know we’ve got a time inconsistency issue. If you don’t, then we know that either:

1) It is just an income issue and so doesn’t matter,
2) It is a time inconsistency issue, but the welfare loss is lower than the cost of joining the voluntary opt-in scheme.

@Paul Walker
Under-saving is definitely a big issue for people researching hyperbolic discounting. Obviously the proliferation of savings accounts with penalties for withdrawals are a response to these sort of concerns. The government’s response so far seems to be Kiwisaver but, as NZIER points out, the heterogeneity among savers makes it a difficult target for subsidies just as alcohol is a difficult target for internality taxation.