Flexible Estimation of Groundwater Service Values and Time Preferences

Grant H. West, Heather Snell, Kent F. Kovacs and Rodolfo Nayga

Journal of the Association of Environmental and Resource Economists, 2021, vol. 8, issue 4, 825 - 861

Abstract: Intertemporal choices depend on the time preference for discounting future costs and benefits. Allowing complex heterogeneity in time preferences can alter present value estimation of willingness to pay. Using data from a choice experiment about groundwater management, we estimate random discount rates and groundwater service values with flexible taste distributions allowing multimodal preferences. Flexible mixing distributions enable hyperbolic and quasi-hyperbolic discounting models to represent discounting heterogeneity so that some individuals can take on values approximating exponential discounting. Discounting most closely exhibits a quasi-hyperbolic form. Time preferences and groundwater service values are not normally distributed but, instead, multimodal. One group of individuals takes on discount rates approaching zero, another takes on rates around 40%, and a third group has rates larger than 80%. Accounting for attribute ignoring behavior leads to a smaller exponential discount rate but no difference in present bias. Accounting for perceived inconsequentiality does not lead to significantly different time preferences.

Date: 2021
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