• Environmental and Resource Economics Review
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• v.24 no.1
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• pp.85-107
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• 2015

This study analyzes the effect of applying hyperbolic social discount rate onto the results of benefit-cost analysis of environmental public investment projects in Korea. In order to check the application possibility to the actual feasibility study, the discount factors generated by hyperbolic function, rather than traditional exponential one, would be applied to the benefit and cost data from the pre-feasibility studies which peformed for environmental public investment projects. The results of this study shows that using hyperbolic social discount rate is effective for enhancing test results, only under the condition of which the full expansion of the time periods of analysis is satisfied. According to the simulation results of this study, to achieve higher benefit/cost ratio by using hyperbolic social discount rate, the period should be increased up to 120 to 150 years at least.

• Analyses & Alternatives
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• v.4 no.1
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• pp.105-123
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• 2020

This study analyzes the risk selection behavior of Japanese households. The study approaches the view of 'the hyperbolic discount' which is used in behavioral economics based on the rise in mortgage lending by low-income households in the late 2000s. The study focuses on how households risk preferences vary by income levels. The study analyzes the relationship of attitude of household interest rate risk using Binomial Logistic and Heckman two-step estimation method assuming that there are only two types of Adjustable-Rate Mortgage and Fixed-Rate Mortgage. As a result of the empirical analysis, low-income households annual income tend to have a higher proportion of housing debt as same as higher interest rate risk preferences households in proportion to income growth and interest rate risk preferences. Those results indicate that there is possibility of a hyperbolic discount on low-income households in Japan, and support the hypothesis that low-income households are relatively higher household debt ratio because of high utility due to home purchase in the near future (short-term).

• Journal of the Chungcheong Mathematical Society
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• v.34 no.2
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• pp.169-180
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• 2021

This paper investigates the time-inconsistent agent's optimal consumption and investment problem under inflation risk. The agents' discount factor is governed by hyperbolic discounting, which has a random time to change. We impose the inflation risk which plays a crucial role in long-term financial planning. We derive the semi-analytic solution to the problem of sophisticated agents when the time horizon is finite.

• Journal of the Chungcheong Mathematical Society
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• v.32 no.2
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• pp.215-224
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• 2019

We investigate the optimal consumption and investment decision problem of an agent whose time preference is time-inconsistent. Specifically, for a time-separable utility function, the agent's subjective discount factor is supposed to be changed randomly in the future. We provide closed-form solutions in the presence of income process. The method can be extended into the case with a stochastic income process.

• Journal of Environmental Policy
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• v.12 no.4
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• pp.71-92
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• 2013

Unlike general public investment projects, when it comes to environmental public investment projects, there is a gap between those who pay the costs, and those who receive the benefits. This is because of the long term nature of environmental investments, which entails that the majority of the costs are paid by the current generation, while the benefits are reaped by future generations. Because of this, when the social discount rate is set at a standard, singular rate, an issue of relative underestimation of the benefits reaped by future generations may occur during the analytic process. This paper begins with the recognition of this problem, and attempts to estimate a suitable social discount rate that can be applied to environmental investment projects. Taking into account recent economic situations, the social discount rate is currently being estimated at between 2.9 ~ 4.9%. Also, this paper used preliminary feasibility studies that took place so far, to analyze the standard pattern of benefit generation. This revealed that alterations in social discount rates can bring significant changes in economic feasibility test results. Simulation results showed that roughly 6% of B/C ratios could be increased by 1%p. resulting in a decrease in social discount rates. Also if we use hyperbolic discount rates, instead of using the current singular rate, there would be a meaningful increase in the benefits for the future generation.