INDIVIDUAL TIME PREFERENCES FOR INTERGENERATIONAL INVESTMENTS –THE SOCIAL DISCOUNT RATE FOR POLAND Monika Foltyn-Zarychta University of Economics in Katowice
[email protected]
7th International Research Meeting in Business and Management SS Environment and Economic Growth 11-12 July 2016 Nice (France)
Agenda 1. Introduction The contribution of the paper
2. Estimating SDR for Poland via stated preferences Survey methodology Descriptive statistics Discount rates decline Environment vs money 3. Policy implications: SDR recommendations for Poland
4. Conclusions
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1. Introduction: The contribution of the paper x 10000
Intergenerational time frame 100,0
80,0
60,0
40,0
20,0
0
30 5%
300
3%
Fig.1. Present values of 1 mln benefits at 0, 30 and 300 years
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1. Introduction: The contribution of the paper
Ramsey equation controversies
𝑠 = 𝜌 + 𝜂𝑔
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1. Introduction: The contribution of the paper Applying hypothetical market to estimate social discount rate Authors
Sample size
Direct or implicit DR
Time delays (years)
Domain of effects
Results of IDR
Luckert & Adamowicz (1993)
180 students
0-90
Forest, stock and bonds
Less than 0, 0% to over 6%
Cropper et al. (1994)
3000 (general public) 62 +54 + 80 students
Implicit: Choice questions (different time paths) Implicit: Dichotomous choice Implicit: Choice (series of choice questions)
5, 10, 25, 50, 100
Life saved, lifeyears, money
3.4% for 100 years delay to 16.8% for 5 years delay
declining
1, 2,10,30,60, 300, 900
Lives saved, health improvements and financial benefits
0% to about 40% depending on time delay
declining
Direct question to estimate the real rate of discount Implicit: Choice, matching, rating
N/A
Environmental projects (climate change) Lives saved
Mean:4%; median: 3%
N/A
Outcome domain (lives, health or financial) and beneficiary (close vs remote) did not influenced N/A
0%, 7.2% for 25 years delay, 1% or 3.8% for 100 years delay*
declining
N/A
Health, money, environment
(median) 2.7% for 5 years to 1.1% for 40 years for health
declining
Correlation between domains, age, job type
0–30, 31–75, 76–125, 126–200, 201–300, > 300
Intergenerational projects
3.47% (for time horizon 0-30) to 0.87% (for more than 300 years) mean
declining
N/A
long-term (>100 years)
General (“single number, global average and longterm”)
SDR median 2% mean 2.27%; Ramsey’s STPR: mean 3.48%, median, 3.00%
N/A
N/A 5 Experts’ characteristics: European or rest of the world, holding professor position, year of PhD
Chapman (2001)
Weitzman (2001) Frederick (2003)
Meerding et al. (2010)
Almansa & MartínezPaz (2011)
2160 economists (PhD level) 401 (voters selected for juries and undergraduat e students) 173 healthcare professionals and 34 health policymakers 98 experts
Drupp et al. 200 experts (2015) on social discounting
Implicit: Discrete choice tasks, choice experiment
Direct question to estimate the value (score or interval) of discount rate Direct question to estimate the value and components of SDR
24, 25, 100, up to 10, 10-20, 2030, Present, children and grandchildren 5, 10, and 40
Relationship between DR and time declining
Socio-economic factors influencing IDR
Choice of good, Whether is managed privately or publically, disposable income Age, race, having minor children
1. Introduction: The contribution of the paper
SDR institutional recommendations for Poland Source
SDR values
Polish Ministry of 5% Development (2015) Polish Ministry of No estimate Environment (2015)
Estimation approach
Long-term
Constant or declining
Official recommendations following EU guidelines Recommendations following EU guidelines.
Not mentioned
Constant
Domain specific or general general
Mentioned
Constant or declining
Climate change
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1. Introduction: The contribution of the paper SDR estimations for Poland Source
SDR values
Estimation approach Long-term
Evans & Sezer (2005) Florio & Sirtori (2013) Rozylow (2013)
6.1%
STPR (Ramsey)
Not mentioned Constant
Domain specific or general general
4.43%
STPR (Ramsey)
Not mentioned Constant
general
5.8% for the first 40 years and 5.3% for the rest of the period (up to 60 years) 17% for 5 years; 19% for 25 years. 9.6% for 75 years. 8.2% for 300 years
STPR (Ramsey)
Yes. 60 years
Declining
nuclear plant
Contingent valuation (close-ended questions)
Yes. 300 years
Declining
Saving lives
Foltyn-Zarychta (2014)
Constant or declining
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1. Introduction: The contribution of the paper The contribution of the paper is to fill in the gap regarding social discount rates estimates for long run public projects planning for Poland. Aim: formulating a proposal of declining discount rate schedule for Poland on the basis of individual time preferences for environmental investments elicited from contingent valuation survey.
The survey aimed at answering: 1) what social discount rate values are delivered by intertemporal choices made by polish citizens? 2) whether the value of the individual discount rate decline with time and whether this decline follows hyperbolic discounting schedule? 3) whether the value of the individual discount rate differs between private financial gains and public environmental benefits? 8
2. Estimating SDR for Poland via stated preferences Elicitation of individual discount rates from hypothetical time preferences bids Respondents ware asked to choose an environmental gain (number of visitors to national park) or a value of money (lottery gain) in the future (future effects, FE) which makes them indifferent between choosing this future gain and present effects (PE).
PE ~ FE U FE U PE FE 1 rate PE FE ln PE IDR n
PE – investment effects enjoyed at present FE – investment effects enjoyed in the future rate – individual rate of intertemporal exchange of present effects for future effects
IDR - individual annual discount rates for continuous compounding n - number of years of delay
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2. Estimating SDR for Poland via stated preferences Effects and delays tested
Environmental benefits – public Money benefits - private The discount rate valuation comprised of four consecutive questions for 10, 30, 90 and 150 years of delay Saving lives - Poland Saving lives - Latvia
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2. Estimating SDR for Poland via stated preferences Effects and delays tested
Environmental benefits – public Money benefits - private
The discount rate valuation comprised of four consecutive questions for 10, 30, 90 and 150 years of delay
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2. Estimating SDR for Poland via stated preferences Participants Respondents were surveyed in 2014 via Centre of Research and Knowledge Transfer at University of Economics in Katowice. The survey was designed as an internet questionnaire. Properly filled in (complete) questionnaires were returned by 502 respondents.
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2. Estimating SDR for Poland via stated preferences
Descriptive statistics for discount rate for project with environmental benefits (national parks) NP for all time lags Delay
N
NP10 NP30 NP90 NP150
470 470 469 469
Mean (%) 9.90 5.50 2.48 1.76
Median (%) 7.70 3.79 2.34 1.55
Mode (%) 0.00 0.00 0.00 0.00
NMode 150 101 91 106
Min (%) -25.58 -7.94 -2.59 -1.55
Max Q1 (%) Q3 (%) (%) 76.75 0.00 17.88 29.37 1.40 9.34 12.94 0.78 3.82 9.54 0.00 2.63
SD (%) 13.34 5.57 2.33 1.69
ANOVA Friedman, p