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

  • Howard, Gregory

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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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 66 (2013)
Issue (Month): 3 ()
Pages: 583-597

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Handle: RePEc:eee:jeeman:v:66:y:2013:i:3:p:583-597
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