Separating Discounting from Changing Utility

Craig S. Webb

Economics Discussion Paper Series from Economics, The University of Manchester

Abstract: Discounting of delayed utilities is the guiding principle for evaluating policies with future implications. Many public institutions commit to using a fixed schedule of discount rates. But the decision makers in these institutions change over time. What normative principle justifies using a fixed schedule of discount rates when the tastes of the decision makers are not fixed over time? To address this question, this paper introduces a framework of discounted current utility that separates discounting from changing utility. An axiom of time tradeoff invariance is shown to be the key characterising condition. This is the normative principle that justifies using a given schedule of discount rates, irrespective of whether utility changes over time. We also compare constant discount rates, adopted in US public institutions, with the declining rates adopted by various European institutions. What normative principle separates these approaches? We identify a condition called time tradeoff consistency that characterises discounting at a constant rate. Time tradeoffs are used to derive subjective delay midpoints, which provide a powerful tool for identifying and comparing decreasing impatience across decision makers, who have different utilities, even if both of their utilities change over time.

Date: 2026-04
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