American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Discounting Disentangled
American Economic Journal: Economic Policy
vol. 10,
no. 4, November 2018
(pp. 109–34)
Abstract
The economic values of investing in long-term public projects are highly sensitive to the social discount rate (SDR). We surveyed over 200 experts to disentangle disagreement on the risk-free SDR into its component parts, including pure time preference, the wealth effect and return to capital. We show that the majority of experts do not follow the simple Ramsey Rule, a widely-used theoretical discounting framework, when recommending SDRs. Despite disagreement on discounting procedures and point values, we obtain a surprising degree of consensus among experts, with more than three-quarters finding the median risk-free SDR of 2 percent acceptable.Citation
Drupp, Moritz A., Mark C. Freeman, Ben Groom, and Frikk Nesje. 2018. "Discounting Disentangled." American Economic Journal: Economic Policy, 10 (4): 109–34. DOI: 10.1257/pol.20160240Additional Materials
JEL Classification
- C83 Survey Methods; Sampling Methods
- D61 Allocative Efficiency; Cost-Benefit Analysis
- D82 Asymmetric and Private Information; Mechanism Design
- H43 Project Evaluation; Social Discount Rate
- Q58 Environmental Economics: Government Policy
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