Understanding Observed Differences in Time-Preference Rates

EPA Grant Number: R827931
Title: Understanding Observed Differences in Time-Preference Rates
Investigators: Gregory, Robin , Slovic, Paul
Current Investigators: Gregory, Robin , Slovic, Paul , Finucane, Melissa L. , Peters, Ellen , Knetsch, Jack , Arvai, Joseph , Burns, Katie , Lichtenstein, Sarah
Institution: Decision Science Research Institute Inc.
Current Institution: Decision Science Research Institute Inc. , The Ohio State University , University of Oregon
EPA Project Officer: Chung, Serena
Project Period: September 30, 1999 through September 29, 2001 (Extended to March 31, 2003)
Project Amount: $228,463
RFA: Decision-Making and Valuation for Environmental Policy (1999) RFA Text |  Recipients Lists
Research Category: Environmental Justice

Description:

The primary objective of the proposed research is to improve the techniques used in the assessment and evaluation of project and program alternatives by investigating the conditions under which people discount future gains and future losses at different rates. Our experiments will examine the role and importance of the endowment effect and other context, specifically preference construction and affect or emotions, in explaining differences in intertemporal choices. We also will examine possible differences in time-preference rates for different types of outcomes (e.g., financial vs. environmental vs. health effects) and for near-term, as compared to far-term, consequences.

Approach:

Responses to questionnaires will be analyzed, primarily using comparisons of the proportions of respondents answering questions that investigate (a) the conditions under which people discount future gains and losses at different rates, (b) the role and importance of context in explaining differences in intertemporal rates, (c) possible differences in intertemporal rates for different kinds of future outcomes, including a variety of financial, environmental policy, and health consequences, and (d) tests of different rates for near- and far-term outcomes in ways that take into account possible confounding by the endowment (gain/loss) effect. Both descriptive and inferential measures will be used; for example, comparisons of mean willingness-to-pay responses and comparisons of proportions in different cells (i.e., under different experimental conditions) will be analyzed using standard univariate and multivariate statistical tests to infer the reliability of the differences that we observe.

Expected Results:

The expected results of this project will contribute to improvements in the methodology used in benefit-cost analyses of proposed changes to environmental quality and public health. A consistent difference in the observed rates among time-preference measures would call into question the conventional practice of using a single rate to discount all of the future outcomes attributable to a program or project. A disparity in rates used to discount future gains and losses also would cast doubt upon the common practice of calculating the net present value of a stream of future gains and losses as either (1) the sum of the present values of all the gains less the sum of the present value of all of the losses, or (2) the sum of the present values of the benefits minus the losses in each year. These would only be equivalent if the discount rate were the same for gains and for losses. In addition, the implications of the proposed studies extend beyond formal analyses of costs and benefits, present values and the like to include the way in which issues and problems involving time preferences are thought about and discussed -- the habit of mind that can influence social judgments and decisions regarding protection of the natural environment and public health.

Publications and Presentations:

Publications have been submitted on this project: View all 11 publications for this project

Journal Articles:

Journal Articles have been submitted on this project: View all 1 journal articles for this project

Supplemental Keywords:

time-preference rates, discounting, benefit-cost analysis,, RFA, Economic, Social, & Behavioral Science Research Program, decision-making, Economics & Decision Making, intertemporal choices, alternative compensation, policy analysis, social psychology, surveys, discounting future gains, time-preference rates, community involvement, decision analysis, economic benefits, public issues, risk management, economic incentives, environmental values, preference formation, socioeconomics, cost/benefit analysis, environmental policy, long-term consequences, endowment effect, psychological attitudes, interviews, public policy, benefits assessment, econometric analysis

Progress and Final Reports:

  • 2000 Progress Report
  • 2001 Progress Report
  • 2002
  • Final Report