Convex Time Budgets and Individual Discount Rates in the Long Run

  • Therese C. Grijalva
  • Jayson L. Lusk
  • Rong Rong
  • W. Douglass Shaw
Article

Abstract

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.

Keywords

Discount rate Benefit-cost analysis Convex time budgets Hyperbolic discounting Long time horizon 

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Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  • Therese C. Grijalva
    • 1
  • Jayson L. Lusk
    • 2
  • Rong Rong
    • 3
  • W. Douglass Shaw
    • 4
  1. 1.Weber State UniversityOgdenUSA
  2. 2.Oklahoma State UniversityStillwaterUSA
  3. 3.University of MassachusettsAmherstUSA
  4. 4.Texas A&M UniversityCollege StationUSA

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