Studies on Intertemporal Preferences with Applications to Health Economics

Economic benefits are often received at different points in time. There are numerous examples of economic applications where the outcomes occur at multiple points in time. Among these are the savings decisions of households, the environmental policies of countries, investment decisions of firms, health-related decisions of individuals, and educational activities of students. In the majority of these cases, future outcomes are valued lower than similar present outcomes, i.e. there is positive time preference. There are several reasons for this behavior. One reason is that the future is almost always surrounded by uncertainty, whilst outcomes received immediately or in the nearer future are more certain. This translates into the discounting of future outcomes. Second, utility is often concave in outcomes (diminishing marginal utility). This means that more units of a particular outcome give less additional utility the more one already possesses of that outcome or the more one has already consumed of it. A second cup of coffee, for example, often gives less utility than the first one. Because wealth is increasing over time due to economic growth, people have more possibilities to consume in the future than in the present. The utility of this extra consumption does, however, not increase proportionally with the increase of consumption, so that future outcomes give less utility than similar present outcomes.