Musings on the Social Discount Rate

Arnold Harberger () and Glenn Jenkins ()
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Arnold Harberger: University of California, Los Angeles, USA

No 2015-01, Development Discussion Papers from JDI Executive Programs

Abstract: This paper is mainly concerned with weighted average measures of the social discount rate, where the components of the average are the marginal productivity of investment (measured by its gross-of-tax rate of return), and the marginal rate of time preference (measured by the net-of-tax yield of capital). We believe that these components should best be measured using data (the national accounts) that span the whole economy and reflect the product actually produced and the rewards actually perceived. We use a methodology based on just four familiar parameters to generate productivity estimates applicable to a wide range of countries. In the process, we make an adjustment for infrastructure investment, also excluding income from land, monopoly markups, supra-marginal returns due to TFP increases, and returns to capital in financial intermediation. The end products are estimates of social discount rates averaging around 8 percent for the advanced countries, and 10 percent for healthy developing countries and Asian Tigers.

Keywords: Social discount rate; benefit-cost analysis; opportunity cost; time preference (search for similar items in EconPapers)
JEL-codes: D61 H43 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2015-01
New Economics Papers: this item is included in nep-pub and nep-sea
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Musings on the Social Discount Rate 1 (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:dpaper:271

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