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2009-10-21 | Policy Brief

Changes in discount rates over time: Evidence from Ethiopia

Yesuf, Mahmud and Heather Klemick. 2008. “Do Discount Rates Change over Time? Experimental Evidence from Ethiopia.” EfD Discussion Paper 08
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Numerous experimental studies have lent credence to the hyperbolic discounting model, which posits that individuals are impatient about immediate or near-term consumption decisions, but are relatively more patient over future consumption.

Experiments documenting this behaviour found that subjects often preferred, for instance, to receive $1 today, rather than $2 a month from now, but they also preferred $2 in 13 months over $1 in 12 months. Few studies have examined inconsistent time preferences in developing countries, where discount rates are more likely to diverge from market interest rates due to pervasive capital market imperfections. Levitt and List (2007) highlighted the importance of complementing lab studies with evidence from field experiments.

Co-author

Heather Klemick