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

Lookup NU author(s): Professor Susan Chilton, Emeritus Professor Michael Jones-Lee, Dr Hugh Metcalf

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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.

Publication metadata

Author(s): McDonald R, Chilton S, Jones-Lee M, Metcalf H

Publication type: Article

Publication status: Published

Journal: Journal of Environmental Economics and Management

Year: 2017

Volume: 82

Pages: 152-167

Print publication date: 01/03/2017

Online publication date: 23/11/2016

Acceptance date: 19/11/2016

Date deposited: 29/11/2016

ISSN (print): 0095-0696

ISSN (electronic): 1096-0449

Publisher: Elsevier

URL: http://dx.doi.org/10.1016/j.jeem.2016.11.005

DOI: 10.1016/j.jeem.2016.11.005

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