Thanks for the clarifications. They made sense to me.
My understanding is that GWs pure time preference is similar to ours and that any differnece in effective discounts is related to how they treat uncertainty over the future, but I have’t looked into this.
Here are the details (linked here) about GW’s discount rate of 4 %. Pure time preference does not contribute to this.
We considered five reasons to assign a discount rate.
Increases in consumption over time meaning marginal increases in consumption in the future are less valuable. We chose a rate of 1.7% based on an expectation that economic consumption would grow at 3% each year, and the function through which consumption translates to welfare is isoelastic with eta=1.59. (Note that this discount rate should be applied to increases in ln(consumption), rather than increases in absolute consumption; see calculations here)
Temporal uncertainty. Uncertainty increases with projections into the future, meaning the projected benefits may fail to materialize. James recommended a rate of 1.4% based on judgement on the annual likelihood of an unforeseen event or longer term change causing the expected benefits to not be realized. Examples of such events are major changes in economic structure, catastrophe, or political instability. This does not include the probability that a person will die before realizing the full benefits of the intervention, which is captured elsewhere in our cost-effectiveness analysis.
Pure time preference (beneficiaries). People act in such a way that implies they would prefer spending now to later. We did not apply an additional adjustment for this factor. We believe the common use of self-commitment mechanisms such as savings accounts indicate that a preference for short term benefits is often an involuntary action (independently of reasons 1 and 2).
Pure time preference (donors). Donors may prefer to achieve benefits now rather than later independently of the relative benefit to the beneficiaries. We do not have this preference.
Compounding non-monetary benefits. There are non-monetary returns not captured in our cost-effectiveness analysis which likely compound over time and are causally intertwined with consumption. These include reduced stress and improved nutrition. We chose a rate of 0.9% to account for this based on discussion.
Thanks for the clarifications. They made sense to me.
Here are the details (linked here) about GW’s discount rate of 4 %. Pure time preference does not contribute to this.