Estimating discount factors for public and private goods and testing competing discounting hypotheses
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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.
KeywordsDiscounting Hyperbolic Random utility Intertemporal choice
JEL ClassificationsD90 Q25 Q53 H43
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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