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

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 eco nomic agents. This paper compares the discounted utility model with three h yperbolic discounting models with respect to private and social financial b enefits. The discounting models are fitted using non-linear regression tech niques to data collected from the general public. Regression analysis is th en used to test the theoretical validity of the models. The main test is wh ether the period of years for which the benefit is to be delayed is a stati stically significant predictor of the respective values of the discounted u tility model and the three hyperbolic discounting models. This tests whethe r these discounting models are satisfactory representations of the individu als' 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 regressio n results were very similar for the private and social financial benefits. (C) 2000 Elsevier Science B.V. All rights reserved. PsycINFO classification : 2340 JEL classification: D90.