The discounting premium puzzle: Survey evidence from professional economists

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

Journal of Environmental Economics and Management, 2023, vol. 122, issue C

Abstract: We surveyed economists’ attitudes toward adjusting discount rates to the risk profile of public programs. Three-quarters of respondents recommend to use project-specific discount rates. For example, on average, respondents discount railway infrastructures more than hospitals and climate mitigation. But the degree of discount discrimination between distinct risk profiles of different projects is fairly limited in our sample given the differences in risk profiles for these projects. Economic experts thus penalize risky public projects far less than financial markets penalize private investments. We call this the ”discount premium puzzle”. Finally, among experts in favor of a single discount rate, there is no consensus on whether it should be based on the average cost of capital in the economy, the sovereign borrowing cost, or the Ramsey rule, which gives rise to disagreement over the level of the recommended discount rate.

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: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The discounting premium puzzle: survey evidence from professional economists (2022)
Working Paper: The Discounting Premium Puzzle: Survey evidence from professional economists (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:122:y:2023:i:c:s0095069623001006

DOI: 10.1016/j.jeem.2023.102882

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