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  • Discounting and the Time Preference Rate

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    52378_1.pdf (342.5Kb)
    Author(s)
    Creedy, John
    Guest, Ross
    Griffith University Author(s)
    Guest, Ross
    Year published
    2008
    Metadata
    Show full item record
    Abstract
    This paper provides an analytical review of the evaluation of alternative time streams of consumption and the closely related concept of time preference. The potential sensitivity of comparisons, especially to the choice of time preference rate and elasticity of marginal valuation, is demonstrated. The nature of time preference, based on an axiomatic approach, is then discussed. The analysis of optimisation over time leads to the concept of the social time preference rate, and a difficulty with using this rate is highlighted. Approaches giving rise to declining discount rates over time are discussed, including ...
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    This paper provides an analytical review of the evaluation of alternative time streams of consumption and the closely related concept of time preference. The potential sensitivity of comparisons, especially to the choice of time preference rate and elasticity of marginal valuation, is demonstrated. The nature of time preference, based on an axiomatic approach, is then discussed. The analysis of optimisation over time leads to the concept of the social time preference rate, and a difficulty with using this rate is highlighted. Approaches giving rise to declining discount rates over time are discussed, including alternative welfare functions and the role of uncertainty. This is followed by a critique of methods used to 'estimate' a time preference rate. Finally, complications introduced by non-income differences between individuals are examined. Emphasis is placed on the central role of value judgements.
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    Journal Title
    Economic Record
    Volume
    84
    Issue
    264
    Publisher URI
    http://www.wiley.com/bw/journal.asp?ref=0013-0249
    DOI
    https://doi.org/10.1111/j.1475-4932.2008.00450.x
    Copyright Statement
    © 2008 Blackwell Publishing. This is the author-manuscript version of the paper. Reproduced in accordance with the copyright policy of the publisher. The definitive version is available at www.interscience.wiley.com
    Subject
    Economics
    Commerce, management, tourism and services
    Publication URI
    http://hdl.handle.net/10072/21590
    Collection
    • Journal articles

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