Discounting and the Time Preference Rate

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Title Discounting and the Time Preference Rate
Author Creedy, John; Guest, Ross
Journal Name Economic Record
Year Published 2008
Place of publication New Jersey
Publisher Blackwell
Abstract 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.
Peer Reviewed Yes
Published Yes
Publisher URI http://www.wiley.com/bw/journal.asp?ref=0013-0249
Alternative URI http://dx.doi.org/10.1111/j.1475-4932.2008.00450.x
Copyright Statement Copyright 2008 Blackwell Publishing. This is the author-manuscript version of the paper. Reproduced in accordance with the copyright policy of the publisher. The definitive version is available at www.interscience.wiley.com
Volume 84
Issue Number 264
Page from 109
Page to 127
ISSN 0013-0249
Date Accessioned 2008-12-09
Date Available 2009-03-03T22:28:27Z
Language en_AU
Research Centre Griffith Asia Institute
Faculty Griffith Business School
Subject PRE2009-Macroeconomics (incl. Monetary and Fiscal Theory)
URI http://hdl.handle.net/10072/21590
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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