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Social discounting under uncertainty: A cross-country comparison

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

Journal of Environmental Economics and Management, 2009, vol. 57, issue 2, 140-150

Abstract: Recent research suggests that social cost-benefit analysis should be conducted with a declining discount rate. For instance Newell and Pizer [Discounting the distant future: how much do uncertain rates increase valuations? J. Environ. Econ. Manage. 46 (2003) 52-71] show that the US certainty-equivalent discount rate declines through time, using a simple autoregressive model of US 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 UK. 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; Nuclear; power (search for similar items in EconPapers)
Date: 2009
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Working Paper: Social Discounting Under Uncertainty: A cross-country comparison (2006) Downloads
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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