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Disability Risk and Hyperbolic Discounting

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  • Sanghoon K Lee

    (Hallym University)

Abstract

This paper presents a model where the ability to enjoy consumption gets impaired by disabilities over time. A continuous-time Markov chain model is constructed to examine how disability risk affects consumers' discounting of future utilities. It is shown that hyperbolic discounting arises for all future periods when disabilities occur independently. When the risks are interdependent, it is shown that hyperbolic discounting arises asymptotically as long as the hazard of disability increases with the set of possible disabilities.

Suggested Citation

  • Sanghoon K Lee, 2015. "Disability Risk and Hyperbolic Discounting," Economics Bulletin, AccessEcon, vol. 35(1), pages 371-380.
    • Handle: RePEc:ebl:ecbull:eb-14-00566
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    References listed on IDEAS

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    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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