Disability Risk and Hyperbolic Discounting

Sanghoon Lee ()
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Sanghoon Lee: Hallym University

Economics Bulletin, 2015, vol. 35, issue 1, 371-380

Abstract: This paper presents a model where the ability to enjoy consumption gets impaired by disabilities over time. A continuous-time Markov chain model is constructed to examine how disability risk affects consumers' discounting of future utilities. It is shown that hyperbolic discounting arises for all future periods when disabilities occur independently. When the risks are interdependent, it is shown that hyperbolic discounting arises asymptotically as long as the hazard of disability increases with the set of possible disabilities.

JEL-codes: D1 D9 (search for similar items in EconPapers)
Date: 2015-03-11
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