A Cross-Country Comparison of Consumer Discount Rates

Abstract

The consumer discount rate is a fundamental concept underlying virtually all intertemporal consumer-choice and capital-growth models. The discount rate is defined to be the rate at which a consumer, whose consumption path is assumed to be constant over time, must be paid to substitute future consumption for present consumption and still remain indifferent. In other words, the discount rate is the intertemporal marginal rate of substitution, evaluated at a stationary consumption path, minus 1. This chapter develops a new theoretical foundation for estimating the consumer discount rate and applies the method by deriving some international comparisons of discount rates.