Social Discounting Under Uncertainty: A cross-country comparison

Cameron J. Hepburn (), Phoebe Koundouri (), Ekaterini Panopoulou () and Theologos Pantelidis

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: Recent research suggests that social cost-benefit analysis should be con- ducted with a declining discount rate. For instance, Newell and Pizer [23] show that the U.S. certainty-equivalent discount rate declines through time, using a simple autoregressive model of U.S. interest rates. This paper extends that line of research, estimating both autoregressive and regime-switching models of real interest rates to determine certainty- equivalent discount rates in Australia, Canada, Germany and the United Kingdom. It is found that the regime-switching model is a better model of past interest rate behavior for all four countries. This model tends to produce a more rapid decline in certainty-equivalent discount rates. The paper provides applications to the economics of climate change and nuclear power.

Keywords: discounting; uncertainty; regime-switching models; climate change policy; nuclear power (search for similar items in EconPapers)
Date: Written 2006-11-16
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