Convex Time Budgets and Individual Discount Rates in the Long Run
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The purpose of this study is to use experimental data to estimate individual discount rates and test for hyperbolic discounting over a long time horizon. To do this, we employ the convex time budget experimental approach with cash payments over a 20 year time horizon. To date, there are few experimental studies that explore discount rates beyond a 1 year time horizon. Previous experimental studies that focus on short time horizons find high discount rates, which may not be applicable to decisions that affect outcomes in the distant future. Our findings are quite similar to the average rate of 4.9% found by Grijalva et al. (Environ Resour Econ 59:39–63, 2014), who similarly use a 20 year time horizon, but use the multiple price list elicitation method along with payment via government savings bonds. We find annual discounts rates in the range of 1.9–5.5%, depending on the specific model used. We also find evidence for declining discount rates, and that this hyperbolic pattern of behavior is related to the confidence subjects have in receiving distant-future payments.
KeywordsDiscount rate Benefit-cost analysis Convex time budgets Hyperbolic discounting Long time horizon
We thank Catherine Eckel, Glenn Harrison and Marco Palma for comments on this or an earlier version of this paper; Ben Groom and Johannes Stroebel for pointing us to their relevant new work on discounting; Moritz A. Drupp for insight on social discount rates and clarifications regarding our experimental methods; seminar participants at Arizona State University; and two anonymous referees. The usual disclaimer applies. W. Douglass Shaw acknowledges partial funding of his time from a U.S.D.A. Hatch Grant. Therese C. Grijalva acknowledges funding from the Hemingway family.
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