Abstract
Benefit-cost analysis of government projects that reduce health risks over an extended period of time requires an estimate of the value of a future life. This in turn requires a discount rate. We suggest and carry out a method to estimate the discount rate using observations on discrete choices between projects with different time horizons. This method is implemented in a survey context. For our primary example, the estimated median discount rate is close to the market rate. A substantial proportion of the sample is estimated to have quite low discount rates. We provide some evidence that discount rates may differ for different types of risks.
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This research was supported in part by the U.S. Environmental Protection Agency under Cooperative Agreement in Environmental Economics Research CR-813557-01-0. The opinions expressed do not necessarily reflect the views of the U.S. Environmental Protection Agency. We would like to thank Paul Portney for bringing the importance of discounting statistical lives to our attention, and John Conlisk, Maureen Cropper, Mark Machina, Robert Mitchell, Peter Navarro, and Walter Oi for helpful comments.
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Horowitz, J.K., Carson, R.T. Discounting statistical lives. Journal of Risk and Uncertainty 3, 403–413 (1990). https://doi.org/10.1007/BF00353349
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DOI: https://doi.org/10.1007/BF00353349