QUESTION A2 [25 marks] a) Jessica needs to pay off a loan. Doing so entails a cost of 1000 when she pays off her loan. However, if she doesn't pay off her loan then she will incur interest of 150. This means that paying off her loan in period t generates a benefit of 1150 in period, t+1, because she has cleared her 1000 loan and avoids paying 150 interest i. Assume Jessica is an exponential discounter. What is the maximum discount rate at which she will choose to pay her loan today? Assume her outside option is to not pay off her loan, and hence not incur the cost or gain the future benefit. Explain your reasoning. (5 marks) ii. Calculate the equivalent personal interest rate that corresponds to the personal discount rate you found in part (1). (3 marks) iii. Now assume Jessica is a quasi-hyperbolic discounter. Assume she does not discount the future exponentially (so D=1). Assume she places a weight of 0.7 on future utility. Explain whether Jessica will plan to pay her loan off in the next period, and whether she will successfully carry out her plan. (5 marks) b) Jessica decides to implement a commitment device to make sure she pays off her loan straight away. Explain the idea of commitment devices as a tool for overcoming procrastination. Propose how Jessica's commitment device could work, explaining how it would change her incentives. (12 marks)