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Empirical measures of factors affecting social rates of discount

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  • Martin Luckert
  • Wiktor Adamowicz

Abstract

Economists have long considered possible divergences between private and social rates of time preferences. In this paper, we investigate factors hypothesized to affect this potential divergence. Results indicate that time preferences of individuals may be influenced by: 1. whether the resource in question is publicly or privately managed (respondents tend to have lower rates of time prefernce for publicly managed resources); and 2. the type of good being managed (respondents tend to have lower rates of time preference for income derived from a forest than for income derived from a portfolio of stocks and bonds). Additional factors which may influence the revealed rate of time preference include the pattern of benefits derived over time and various personal characteristics of the respondent. Although numerous methodological problems cloud the issues, our results suggest that capital markets may fail to aggregate utility over individuals and between goods, and that it may therefore be appropriate for governments to consider using lower rates of discount than the private sector, and to vary the rate used according to the type of good being evaluated. Copyright Kluwer Academic Publishers 1993

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File URL: http://hdl.handle.net/10.1007/BF00338317
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

Volume (Year): 3 (1993)
Issue (Month): 1 (February)
Pages: 1-21

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Handle: RePEc:kap:enreec:v:3:y:1993:i:1:p:1-21

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: Time preferences; interest rates; inter generational equity; inter temporal allocation;

References

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  1. Newbery, David M, 1990. "The Isolation Paradox and the Discount Rate for Benefit-Cost Analysis: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 235-38, February.
  2. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-17, March.
  3. Sugden, Robert, 1984. "Reciprocity: The Supply of Public Goods through Voluntary Contributions," Economic Journal, Royal Economic Society, vol. 94(376), pages 772-87, December.
  4. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December.
  5. Sen, Amartya K, 1979. "Personal Utilities and Public Judgements: Or What's Wrong with Welfare Economics?," Economic Journal, Royal Economic Society, vol. 89(355), pages 537-58, September.
  6. Nick Hanley, 1992. "Are there environmental limits to cost benefit analysis?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(1), pages 33-59, January.
  7. Moore, Michael J. & Viscusi, W. Kip, 1990. "Discounting environmental health risks: New evidence and policy implications," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S51-S62, March.
  8. Lind, Robert C., 1990. "Reassessing the government's discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S8-S28, March.
  9. Pope, C. III & Perry, Greg, 1989. "Individual versus social discount rates in allocating depletable natural resources over time," Economics Letters, Elsevier, vol. 29(3), pages 257-264.
  10. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-84, September.
  11. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  12. Uri Benzion & Amnon Rapoport & Joseph Yagil, 1989. "Discount Rates Inferred from Decisions: An Experimental Study," Management Science, INFORMS, vol. 35(3), pages 270-284, March.
  13. Kealy, Mary Jo & Montgomery, Mark & Dovidio, John F., 1990. "Reliability and predictive validity of contingent values: Does the nature of the good matter?," Journal of Environmental Economics and Management, Elsevier, vol. 19(3), pages 244-263, November.
  14. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  15. Warr, Peter G & Wright, Brian D, 1981. "The Isolation Paradox and the Discount Rate for Benefit-Cost Analysis," The Quarterly Journal of Economics, MIT Press, vol. 96(1), pages 129-45, February.
  16. Schelling, Thomas C, 1984. "Self-Command in Practice, in Policy, and in a Theory of Rational Choice," American Economic Review, American Economic Association, vol. 74(2), pages 1-11, May.
  17. Schoemaker, Paul J H, 1982. "The Expected Utility Model: Its Variants, Purposes, Evidence and Limitations," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 529-63, June.
  18. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
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Citations

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Cited by:
  1. Saez, Carmen Almansa & Requena, Javier Calatrava, 2007. "Reconciling sustainability and discounting in Cost-Benefit Analysis: A methodological proposal," Ecological Economics, Elsevier, vol. 60(4), pages 712-725, February.
  2. Fischer, Carolyn, 1999. "Read This Paper Even Later: Procrastination with Time-Inconsistent Preferences," Discussion Papers dp-99-20, Resources For the Future.
  3. Heinzel, Christoph & Winkler, Ralph, 2006. "Gradual versus structural technological change in the transition to a low-emission energy industry: How time-to-build and differing social and individual discount rates influence environmental and tec," Dresden Discussion Paper Series in Economics 09/06, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  4. Norman Henderson & Ian Bateman, 1995. "Empirical and public choice evidence for hyperbolic social discount rates and the implications for intergenerational discounting," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(4), pages 413-423, June.
  5. Marta Bottero & Valentina Ferretti & Giulio Mondini, 2013. "From the environmental debt to the environmental loan: trends and future challenges for intergenerational discounting," Environment, Development and Sustainability, Springer, vol. 15(6), pages 1623-1644, December.
  6. Taylor, Cameron L. & Adamowicz, Wiktor L. & Luckert, Martin K., 2003. "Preferences over the timing of forest resource use," Journal of Forest Economics, Elsevier, vol. 9(3), pages 223-240.
  7. Almansa Sáez, Carmen & Calatrava Requena, Javier, 2007. "La Problemática Del Descuento En La Evaluación Económica De Proyectos Con Impacto Intergeneracional: Tasa Ambiental Crítica Y Montante De Transferencia Intergeneracional/Discounting In The Context," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 25, pages 165-198, Abril.

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