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Hyperbolic Discounting of Public Goods

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  • W. Kip Viscusi
  • Joel Huber

Abstract

This article examines revealed rates of time preference for public goods, using environmental quality as the case study. A nationally representative panel-based sample of 2,914 respondents considered a series of 5 conjoint policy choices, yielding 14,570 decisions. Both the conditional fixed effect logit estimates of the random utility model and mixed logit estimates implied that the rate of time preference is very high for immediate improvements and drops off substantially thereafter, which is inconsistent with exponential discounting but consistent with hyperbolic discounting. The implied marginal rate of time preference declines and then rises. Estimates of the quasi-hyperbolic discounting parameter range from 0.48 to 0.61. People who are older are especially likely to have a high disutility from delays in improving water quality.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11935.

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Date of creation: Jan 2006
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Handle: RePEc:nbr:nberwo:11935

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Cited by:
  1. BÃ¥rd Harstad, 2013. "Investment Policy for Time-Inconsistent Discounters," CESifo Working Paper Series 4546, CESifo Group Munich.
  2. Daniel H. Cole, 2007. "The Stern Review and its critics: implications for the theory and practice of costs-benefits analysis," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 4, November.

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