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Journal of Risk and Uncertainty

, Volume 46, Issue 2, pp 133–173 | Cite as

Estimating discount factors for public and private goods and testing competing discounting hypotheses

  • Andrew Meyer
Article

Abstract

The observation of declining discount rates in experimental settings has led many to promote hyperbolic discounting over standard exponential discounting as the preferred descriptive model of intertemporal choice. I develop a new framework, consistent with the random utility model, which directly models the intertemporal utility function and produces explicit maximum likelihood estimates of discounting parameters. I apply this estimation method to a stated-preference survey of river basin cleanup options and revealed-preference lottery payment choices. Formal statistical tests fail to find evidence in support of hyperbolic or quasi-hyperbolic discounting. Annual discount rates range from ten to fourteen percent across the data sets and empirical specifications.

Keywords

Discounting Hyperbolic Random utility Intertemporal choice 

JEL Classifications

D90 Q25 Q53 H43 

Notes

Acknowledgments

I thank Nicholas Flores for helpful comments concerning the survey design and data collection, for allowing me to borrow liberally from his MRB description, and for guidance throughout my dissertation process. I thank Randy Walsh for helpful comments at the inception of this research. I thank two anonymous reviewers for multiple insightful comments that greatly enhanced the quality of this paper. Finally, I thank participants at the 2008 AERE Sessions at the Summer Meeting of the AAEA and at the 10th Occasional Workshop on Environmental and Resource Economics at UC Santa Barbara.

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of EconomicsOhio Wesleyan UniversityDelawareUSA

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