Evidence of variable discount rates and non-standard discounting in mortality risk valuation

Research output: Contribution to journalArticle

Authors

Abstract

Time discounting is central to the valuation of future health and mortality risks in public sector allocative decision-making, particularly for environmental policies with delayed health impacts. Using a Risk-Risk trade-off survey, we elicit discount rates for fatality risks and establish discounting functional forms on both a sample and an individual level. We find wide variation in implicit discount rates for fatality risk between individuals, as well as between-individual heterogeneity in discounting functional forms. In aggregate, the sample is best characterised by subadditive discounting. Our work has implications for the academic investigation of intertemporal choice involving mortality risks, and potentially for the evaluation of policy options with delayed mortality risk outcomes. A thought experiment cautions against the standard practice of assuming that exponential discounting characterises society's time preferences.

Details

Original languageEnglish
Pages (from-to)152-167
JournalJournal of Environmental Economics and Management
Volume82
Early online date23 Nov 2016
Publication statusPublished - 1 Mar 2017

Keywords

  • Discounting, Time preference, VSL, Latency, Mortality risk, Valuation, Resource allocation