Discounting the Distant Future: An Experimental Investigation

Therese Grijalva (), Jayson Lusk and W. Shaw

Environmental & Resource Economics, 2014, vol. 59, issue 1, 39-63

Abstract: We use a laboratory experiment to elicit discount rates over a 20-year time horizon using government savings bonds as a payment vehicle. When using a constant (exponential) discount rate function, we find an implied average discount rate of 4.9 %, which is much lower than has been found in previous experimental studies that used time horizons of days or months. However, we also find strong support for non-constant, declining discount rates for longer time horizons, with an extrapolated implied annual discount rate approaching 0.5 % in 100 years. There is heterogeneity in discount rates and risk preferences in that people with more optimistic beliefs about technological progress have higher discount rates. These findings contribute to the debate over the appropriate discount rate to use in comparing the long-term benefits of climate change mitigation to the more immediate costs. Copyright Springer Science+Business Media Dordrecht 2014

Keywords: Discount rate; Hyperbolic discount rates; Time inconsistent preference; Climate change; Experiment (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (17)

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DOI: 10.1007/s10640-013-9717-0

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