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Discounting for personal and social payments: Patience for others, impatience for ourselves

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  • Howard, Gregory

Abstract

The market rate of return on private investment is often used as the discount rate when conducting cost-benefit analysis (CBA) of public projects. I argue that the decision to invest pits current consumption against future consumption, both of which accumulate to the private decision maker. Public projects, on the other hand, provide benefits that accrue to society in general. To examine the appropriateness of discount rates based on returns to private investment, this paper considers lab experiments designed to test whether individuals discount personal and social benefits at different rates. Personal benefits are captured through personal monetary payments, while social benefits are captured through anonymous donations to charitable organizations. I jointly elicit time and risk preferences and find that subjects discount charitable contributions at significantly lower rates than personal payments.

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  • Howard, Gregory, 2013. "Discounting for personal and social payments: Patience for others, impatience for ourselves," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 583-597.
    • Handle: RePEc:eee:jeeman:v:66:y:2013:i:3:p:583-597
    DOI: 10.1016/j.jeem.2013.07.001
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    2. Rong, Rong & Gnagey, Matthew & Grijalva, Therese, 2018. "“The less you Discount, the more it shows you really care”: Interpersonal discounting in households," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 1-23.
    3. Asplund, Disa, 2022. "The welfare-maximizing discount rate in a small open economy," Working Papers 2022:2, Swedish National Road & Transport Research Institute (VTI).
    4. Charles A. Holt & Susan K. Laury, 2005. "Risk Aversion and Incentive Effects: New Data without Order Effects," American Economic Review, American Economic Association, vol. 95(3), pages 902-912, June.
    5. Venmans, Frank & Groom, Ben, 2021. "Social discounting, inequality aversion, and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    6. Lewis Davis & Dolores Garrido & Carolina Missura, 2023. "Inherited Patience and the Taste for Environmental Quality," Sustainability, MDPI, vol. 15(5), pages 1-10, February.
    7. de Oliveira, Angela C.M. & Jacobson, Sarah, 2021. "(Im)patience by proxy: Making intertemporal decisions for others," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 83-99.
    8. Howard, Gregory & Whitehead, John C. & Hochard, Jacob, 2021. "Estimating discount rates using referendum-style choice experiments: An analysis of multiple methodologies," Journal of Environmental Economics and Management, Elsevier, vol. 105(C).
    9. Breuer, Wolfgang & Müller, Torbjörn & Sachsenhausen, Eric, 2022. "The determinants of discounting in intergenerational decision-making," European Economic Review, Elsevier, vol. 148(C).
    10. Islam, Marco, 2022. "Intertemporal Prosocial Choice: The Inconsistency Puzzle," Working Papers 2022:12, Lund University, Department of Economics.
    11. Kölle, Felix & Wenner, Lukas, 2019. "Time-Inconsistent Generosity: Present Bias across Individual and Social Contexts," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203505, Verein für Socialpolitik / German Economic Association.
    12. Makito Takeuchi & Masafumi Tsubuku, 2018. "Time discounting in the presence of time constraints," Economics Bulletin, AccessEcon, vol. 38(2), pages 1180-1186.
    13. Rong Rong & Therese C. Grijalva & Jayson Lusk & W. Douglass Shaw, 2019. "Interpersonal discounting," Journal of Risk and Uncertainty, Springer, vol. 58(1), pages 17-42, February.
    14. Gregory Howard & John C. Whitehead & Jacob Hochard, 2020. "Estimating Discount Rates Using Referendum-style Choice Experiments: An Analysis of Multiple Methods," Working Papers 20-01, Department of Economics, Appalachian State University.
    15. Lugovoy, O. & Polbin, A., 2016. "On Intergenerational Distribution of the Burden of Greenhouse Gas Emissions," Journal of the New Economic Association, New Economic Association, vol. 31(3), pages 12-39.
    16. Monika Foltyn-Zarychta, 2021. "Future-Generation Perception: Equal or Not Equal? Long-Term Individual Discount Rates for Poland," Energies, MDPI, vol. 14(24), pages 1-19, December.

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