Estimating Discount Factors for Public and Private Goods and Testing Competing Discounting Hypotheses
51 Pages Posted: 2 Mar 2012
Date Written: March 1, 2012
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 eight to thirteen percent across the data sets and empirical specifications.
Keywords: discounting, hyperbolic, random utility, intertemporal choice
JEL Classification: D90, Q25, Q53, H43
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