The Personal Discount Rate: Evidence from Military Downsizing Programs

Saul Pleeter and John Warner

American Economic Review, 2001, vol. 91, issue 1, 33-53

Abstract: The military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums. The program offered over 65,000 separatees the choice between an annuity and a lump-sum payment. Despite break-even discount rates exceeding 17 percent, most of the separatees selected the lump sum--saving taxpayers $1.7 billion in separation costs. Estimates of discount rates range from 0 to over 30 percent and vary with education, age, race, sex, number of dependents, ability test score, and the size of payment.

JEL-codes: D91 E24 E31 H56 J26 J65 (search for similar items in EconPapers)
Date: 2001
Note: DOI: 10.1257/aer.91.1.33
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Citations: View citations in EconPapers (355)

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