The Discounting Premium Puzzle: Survey evidence from professional economists

Christian Gollier (), Jiakun Zheng and Frederick (Rick) van der Ploeg

No 22-1345, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We survey the attitude towards the risk-adjustment of efficient discount rates among the economics profession. Three-fourth of our respondents recommend adjusting discount rates to the risk profile of the project under scrutiny, in clear opposition to the standard practice of using a single discount rate in most public administrations around the world. For example, on average, respondents recommend using a larger discount rate for railway infrastructures than for hospitals and climate mitigation. We also observe that the degree of discounting discrimination between obviously different risk profiles remains rather limited in our sample. This generates a ”discounting premium puzzle”: economic experts want to penalize risky public projects much less than financial markets do for private investments. Finally, among experts supporting a single discount rate, there is no consensus about whether it should be based on the average cost of capital in the economy, the sovereign borrowing cost, or the Ramsey rule, yielding disagreement on its level.

Keywords: Risk premium; Project-specific discount rate; Survey evidence (search for similar items in EconPapers)
JEL-codes: D81 G11 Q28 (search for similar items in EconPapers)
Date: 2022-06-27
New Economics Papers: this item is included in nep-ppm
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Journal Article: The discounting premium puzzle: Survey evidence from professional economists (2023)
Working Paper: The discounting premium puzzle: Survey evidence from professional economists (2023)
Working Paper: The discounting premium puzzle: survey evidence from professional economists (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:127051

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