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

Author

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  • McDonald, R.L.
  • Chilton, S.M.
  • Jones-Lee, M.W.
  • Metcalf, H.R.T.

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.

Suggested Citation

  • McDonald, R.L. & Chilton, S.M. & Jones-Lee, M.W. & Metcalf, H.R.T., 2017. "Evidence of variable discount rates and non-standard discounting in mortality risk valuation," Journal of Environmental Economics and Management, Elsevier, vol. 82(C), pages 152-167.
    • Handle: RePEc:eee:jeeman:v:82:y:2017:i:c:p:152-167
    DOI: 10.1016/j.jeem.2016.11.005
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    More about this item

    Keywords

    Discounting; Time preference; VSL; Latency; Mortality risk; Valuation; Resource allocation;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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