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Get discount factor

Source: R/get_discount_factor.R
get_discount_factor.Rd

This function calculates the discount factor based on discount rate. If the argument inflation_rate is NULL (default), it is assumed that the discount rate is already corrected for inflation). Otherwise (if a value for inflation_rate is entered), the resulted discount factor is adjusted for inflation.

Usage

get_discount_factor(
  discount_rate,
  n_years,
  discount_shape = "exponential",
  inflation_rate = NULL
)

Arguments

discount_rate

Numeric value showing the discount rate for future years. If it is a nominal discount rate, no inflation is to be entered. If it is a real discount rate, the result can be adjusted by entering inflation in this function.

n_years

Numeric value referring to number of years in the future to be considered in the discounting and/or inflation. Be aware that the year 0 (without discounting/inflation, i.e. the present) is not be counted here. If a vector is entered in the argument impact, n_years does not need to be entered (length of impact = n_years + 1).

discount_shape

String referring to the assumed equation for the discount factor. By default: "exponential". Otherwise: "hyperbolic_harvey_1986" or "hyperbolic_mazur_1987".

inflation_rate

Numeric value between 0 and 1 referring to the annual inflation (increase of prices). Only to be entered if nominal (not real) discount rate is entered in the function. Default value = NULL (assuming no nominal discount rate).

Value

This function returns the numeric discount factor.

Details

Additional details...

Methodology

Information about the methodology (including corresponding equations and literature) is available in the package vignette. More specifically, see chapters:

References

Frederick S, Loewenstein G, O'Donoghue T (2002). “Time Discounting and Time Preference: A Critical Review.” Journal of Economic Literature, 40(2), 351–401. doi:10.1257/002205102320161311 .

Harvey CM (1986). “Value Functions for Infinite-Period Planning.” Management Science, 32(9), 1123–1139. doi:10.1287/mnsc.32.9.1123 .

Mazur JE (1987). “An adjusting procedure for studying delayed reinforcement.” In Commons ML, Mazur JE, Nevin JA, Rachlin H (eds.), Quantitative Analyses of Behavior: Volume V. The Effect of Delay and of Intervening Events on Reinforcement Value, 55–73. Lawrence Erlbaum Associates, Hillsdale, NJ. ISBN 0-89859-800-1.

Author

Alberto Castro & Axel Luyten

Examples

get_discount_factor(
  discount_rate = 0.07,
  n_years = 5
 )
#> [1] 0.7129862