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Cross-Disciplinary Evidence for Hyperbolic Social Discount Rates

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  • Norman Henderson

    (Senior Policy Advisor, Executive Council, Legislative Building, Regina, Saskatchewan, Canada S4S 0B3)

  • Ian Langford

    (Centre for Social and Economic Research on the Global Environment, University of East Anglia, Norwich NR4 7TJ, United Kingdom)

Abstract

Researchers in different disciplines have independently found evidence to suggest that the social discount rate may be hyperbolic, rather than exponential, in nature. Both behaviorist research and some empirical economics studies support the hyperbolic discounting hypothesis. U.S. and U.K. government discounting dispensations for some long-run public development projects are explicable in terms of an underlying hyperbolic social discount rate. A statistical aggregation argument demonstrates that even if the behaviorist, economics and public choice evidence for hyperbolic discounting is not conclusive, the social discount rate of a set of people who individually express time preferences best modeled by exponential discounting functions is nonetheless hyperbolic. Further empirical economics studies of discounting preferences are required. Comparisons of different national discounting practices would also be useful to see how widespread is the use of unusually low exponential rates of discount for long-run projects. The application of hyperbolic discounting would have most impact in long-run benefit-cost analyses. However, government agencies would require overwhelming evidence before switching from exponential to hyperbolic discounting.

Suggested Citation

  • Norman Henderson & Ian Langford, 1998. "Cross-Disciplinary Evidence for Hyperbolic Social Discount Rates," Management Science, INFORMS, vol. 44(11-Part-1), pages 1493-1500, November.
    • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:11-part-1:p:1493-1500
    DOI: 10.1287/mnsc.44.11.1493
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    References listed on IDEAS

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    4. Diego Nocetti & Elyès Jouini & Clotilde Napp, 2008. "Properties of the Social Discount Rate in a Benthamite Framework with Heterogeneous Degrees of Impatience," Management Science, INFORMS, vol. 54(10), pages 1822-1826, October.
    5. Lazaro, Angelina & Barberan, Ramon & Rubio, Encarnacion, 2002. "The discounted utility model and social preferences:: Some alternative formulations to conventional discounting," Journal of Economic Psychology, Elsevier, vol. 23(3), pages 317-337, June.
    6. Kenneth F. Reinschmidt, 2002. "Aggregate Social Discount Rate Derived from Individual Discount Rates," Management Science, INFORMS, vol. 48(2), pages 307-312, February.
    7. Antonio Nesticò & Gabriella Maselli & Patrizia Ghisellini & Sergio Ulgiati, 2023. "A Dual Probabilistic Discounting Approach to Assess Economic and Environmental Impacts," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 85(1), pages 239-265, May.
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