Intertemporal Valuations and the Influences of Sociodemographics on Personal Discount Rates

Michael R. Strobl

Major Professor: Richard E Wagner, PhD, Department of Economics

Committee Members: Daniel E. Houser, Robert Axtell

Enterprise Hall, #318
December 01, 2011, 10:00 AM to 07:00 AM

Abstract:

This dissertation examines the intertemporal decisions facing thousands of military service members each year as they choose between different military retirement programs. The United States Department of Defense budgets approximately $135 billion per year for the pay and benefits of military service members. Of that, approximately $20 billion is for military retired pay. As will be shown, due to differences in intertemporal valuations, the cost of military retirement programs to the government can exceed their value to the military service members.

Through a review and critique of various schemas for evaluating intertemporal decisions, this dissertation explores potential temporal reallocations of money in the Defense Department’s military retirement programs. These reallocations could save the government nearly $700 million per year while making military service members no worse off. As this dissertation demonstrates, these savings can be realized by leveraging the difference in discount rates used by military retirees and rates employed by the Defense Department to evaluate temporally dispersed benefits. The identification of potential savings then leads to a discussion of why these efficiencies have not been exploited.

Finally, using data on more than 370,000 military retirees facing temporally dispersed monetary rewards, this work offers an econometric analysis of the effects of various sociodemographic characteristics on intertemporal choice.

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