Discounting and the Time Preference Rate
This paper provides an analytical review of the evaluation of alternative time streams of consumption and the closely related concept of time preference. The potential sensitivity of comparisons, especially to the choice of time preference rate and elasticity of marginal valuation, is demonstrated. The nature of time preference, based on an axiomatic approach, is then discussed. The analysis of optimisation over time leads to the concept of the social time preference rate, and a difficulty with using this rate is highlighted. Approaches giving rise to declining discount rates over time are discussed, including alternative welfare functions and the role of uncertainty. This is followed by a critique of methods used to 'estimate' a time preference rate. Finally, complications introduced by non-income differences between individuals are examined. Emphasis is placed on the central role of value judgements. Copyright © 2008 The Economic Society of Australia.
Year of publication: |
2008
|
---|---|
Authors: | CREEDY, JOHN ; GUEST, ROSS |
Published in: |
The Economic Record. - Economic Society of Australia - ESA, ISSN 1475-4932. - Vol. 84.2008, 264, p. 109-127
|
Publisher: |
Economic Society of Australia - ESA |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Population ageing, pensions and growth : intertemporal trade-offs and consumption planning
Creedy, John, (2009)
-
The labour supply and savings effects of superannuation tax changes
Creedy, John, (2008)
-
Changes in the taxation of private pensions : macroeconomic and welfare effects
Creedy, John, (2008)
- More ...