Valuing future private and social benefits: The discounted utility model versus hyperbolic discounting models

Abstract

It is standard practice in economic evaluation and in any economic analysis of future events to assume the discounted utility model on the part of economic agents. This paper compares the discounted utility model with three hyperbolic discounting models with respect to private and social financial benefits. The discounting models are fitted using non-linear regression techniques to data collected from the general public. Regression analysis is then used to test the theoretical validity of the models. The main test is whether the period of years for which the benefit is to be delayed is a statistically significant predictor of the respective values of the discounted utility model and the three hyperbolic discounting models. This tests whether these discounting models are satisfactory representations of the individuals’ intertemporal preferences. The results show that there is evidence in favour of hyperbolic discounting models over the discounted utility model. There were not any statistically significant differences in the discounting models fitted for the private and social financial benefits. The regression results were very similar for the private and social financial benefits.