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The time trade-off: a note on lifetime reallocation of consumption and discounting

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This paper considers the extent to which responses to time trade-off (TTO) questions can provide unbiased estimates of ratios of individual marginal rates of substitution (MRS) of wealth for risk of various health state impairments relative to the corresponding MRS for risk of death. It is shown that if there is reallocation of lifetime consumption and/or discounting of future utilities, then a TTO response that is not adjusted for these effects will unambiguously overestimate the ratios of individual MRS. While the effect of reallocation is likely to be very small, discounting can lead to significant overestimation, the magnitude of which depends in part upon the severity of the health state impairment.

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en

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http://eprints.lse.ac.uk/33048/

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