An Analysis of Power Discount Rates: Evidence from Survey Data
Final rept. Jun 1992-Jan 1993
BATTELLE MEMORIAL INST COLUMBUS OH
Pagination or Media Count:
In fiscal year 1992 the Army began reducing the number of active duty personnel as part of post-Cold War efforts to reduce defense spending. Two financial incentives--a lump sum and an annuity--were offered to induce mid- career personnel to leave before retirement. Among soldiers who accepted these incentives, over 90 of enlisted and 57 of officers chose the lump sum. At this time, the U.S. Army Research Institute for the Behavioral and Social Sciences mailed surveys to 51,000 soldiers. The surveys examined a number of policy issues, including separation programs. Unlike earlier surveys, soldiers were given the opportunity to reveal their preferences for lump sum and annuity programs. From the survey data, a series of personal discount rates were derived. A wide disparity is found between personal discount rates and the programs internal rate of return. Personal discount rates explain the strong preference that separating soldiers have for the lump sum option and suggest improvement in the design of exit options. The survey is validated by comparing survey responses of approximately 400 soldiers with their subsequent decisions concerning early separation.
- Economics and Cost Analysis
- Personnel Management and Labor Relations
- Military Forces and Organizations