Unbiased Analysis of Today's Healthcare Issues
Cohen (2024) argues that health economists should start using 2% discount rates for health economic models. Why is that? I summarize the article below. First, Cohen discusses two different methods for estimating discount rates. Ramsey equation. This approach consider 4 factors: pure time preference, catastrophic risk, wealth effect, and macroeconomic risk. The first 3 factors…
…well, real interest at least. While in the years since the COVID-19 pandemic have seen nominal interest rates rising, in the long run real (i.e., inflation adjusted) interest rates are falling. A NBER working paper by Obstfeld (2023) provides compelling evidence of this trend. Current real interest rates are likely somewhere in the 1%-2% range.…
Discount rates are commonly used in the world of finance. Would you rather have $1 today or $1 in 5 years? Most people would prefer $1 today. For instance, if you had $1 today and put it in a bank account, it would be worth more than $1 in 5 years. Thus, when making financial…