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Characterizing the amount and speed of discounting procedures

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  • Dean T. Jamison
  • Julian Jamison

Abstract

This paper introduces the concept of categorizing the amount and speed of a discounting procedure in order to generate well-characterized families of procedures for use in social project evaluation. Exponential discounting isolates the concepts of amount and speed into a single parameter that must be disaggregated in order to characterize nonconstant rate procedures. The inverse of the present value of a unit stream of benefits provides a natural measure of the amount a procedure discounts the future. We propose geometrical- and time horizon-based measures of how rapidly a procedure acquires its ultimate present value, and we prove these values are the same.

Suggested Citation

  • Dean T. Jamison & Julian Jamison, 2010. "Characterizing the amount and speed of discounting procedures," Working Papers 10-14, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:10-14
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    References listed on IDEAS

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    1. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, May.
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    3. Yvan Lengwiler, 2005. "Heterogeneous Patience and the Term Structure of Real Interest Rates," American Economic Review, American Economic Association, vol. 95(3), pages 890-896, June.
    4. Christopher Harris & David Laibson, 2013. "Instantaneous Gratification," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 205-248.
    5. Ben Groom & Cameron Hepburn & Phoebe Koundouri & David Pearce, 2005. "Declining Discount Rates: The Long and the Short of it," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(4), pages 445-493, December.
    6. Newell, Richard G. & Pizer, William A., 2003. "Discounting the distant future: how much do uncertain rates increase valuations?," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 52-71, July.
    7. Cropper, Maureen L & Aydede, Sema K & Portney, Paul R, 1994. "Preferences for Life Saving Programs: How the Public Discounts Time and Age," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 243-265, May.
    8. Tjalling C. Koopmans, 1959. "Stationary Ordinal Utility and Impatience," Cowles Foundation Discussion Papers 81, Cowles Foundation for Research in Economics, Yale University.
    9. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
    10. Bleichrodt, Han & Gafni, Amiram, 1996. "Time preference, the discounted utility model and health," Journal of Health Economics, Elsevier, vol. 15(1), pages 49-66, February.
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    Keywords

    Production (Economic theory) ; Discount;

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