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Time Preferences for Health in Northern Tanzania

An Empirical Analysis of Alternative Discounting Models

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Abstract

Aim

The discounted utility (DU) model has dominated economic evaluation for almost 7 decades, despite the fact that important assumptions of the model are commonly found to be violated. This paper formally explores whether the key assumption of stationarity is violated in a sample of the general population of Northern Tanzania. Furthermore, three hyperbolic discounting models are fitted to the data, and whether they perform better than the DU model in predicting individuals’ time preferences is tested using nonlinear least squares regression. Method: The data were collected from 450 households by trained enumerators. The individual data on time preferences were collected by structured interviews using an open-ended stated preference methodology. Respondents marked a rating scale to indicate the maximum number of days they would be willing to suffer a nonfatal disease if the outbreak of the disease could be delayed to a point further into the future. Households were randomised to answer questions framed to elicit either a private or social time preference.

Results

Hypothesis testing confirmed decreasing time aversion and a magnitude effect, suggesting that the DU model is inappropriate as a descriptive tool. When the DU model was compared with the three hyperbolic discounting models by analysing the discount factor using nonlinear least squares regression, the most important findings were that a variable for starting point was nonsignificant only for the Loewenstein and Prelec (L & P) and the Mazur models, and that people in this setting generally discounted future health far more than suggested by current discounting practice in economic evaluations.

Conclusion

The time preferences of our sample are better represented by the L & P and the Mazur models (which allow relaxation of the stationarity assumption through a modification of the expression for the discount factor) and less well reflected by the Harvey (a modification of the L & P model that assigns more importance to the future than standard utility discounting) and DU models. This implies that, from the point of view of a consumer sovereignty-friendly economist, the Mazur and the L & P models are preferable for discounting of future health in economic evaluations. However, from the point of view of other value bases for discounting the choice of discounting model is of less importance.

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Notes

  1. Harvey[14] provides the following example to illustrate how sensitive the weights for the distant future are to small changes in discount rate between two early adjacent periods: IfD(1)= (1 + ρ) −1 is increased from (1.10) −1 to (1.05) −1, a relative increase of about 5%, then D(100)=(1 + ρ) −100 is increased from (14 000) −1 to (130) −1, a relative increase of about 10 000%.

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Acknowledgements

This research would not have been possible without excellent co-operation with the Adult Mortality and Morbidity Project (AMMP), National Institute for Medical Research (NIMR), Tanzania Commission for Science and Technology (COSTECH) and the regional, district and village authorities in Tanzania. Data collection was possible because of tremendous efforts from Jonathan Moye, Amini R. Lema, Julie J. Tarimu, Violet Kiwelu, Gabriel Masuki, Yusuf Hemed and David Whiting. The paper benefited from discussions with Espen Bratberg, Gaute Torsvik, Ole Frithjof Norheim, Jan Abel Olsen and Marjon van der Pol. Finally, we are indebted to the 450 households in Hai district who welcomed us and voluntarily spent time answering all those tricky questions. The research was financed by the Norwegian Research Council. The authors have no conflicts of interest relevant to the contents of this paper.

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Authors and Affiliations

  1. Department of Public Health and Primary Health Care, University of Bergen, Bergen, Norway

    Bjarne Robberstad

  2. London School of Hygiene and Tropical Medicine, University of London, London, UK

    John Cairns

  3. Stein Rokkan Centre for Social Studies, University of Bergen, Bergen, Norway

    John Cairns

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  1. Bjarne Robberstad
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  2. John Cairns
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Correspondence to Bjarne Robberstad.

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Robberstad, B., Cairns, J. Time Preferences for Health in Northern Tanzania. Pharmacoeconomics 25, 73–88 (2007). https://doi.org/10.2165/00019053-200725010-00007

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