Measuring the US social discount rate: reply to Azar

Martin Lally

Applied Financial Economics Letters, 2008, vol. 4, issue 4, 283-285

Abstract: Azar (2007) argues that an appropriate market-based estimate of the US real social discount rate is 5.66%, with a 95% confidence interval ranging from 5.62 to 5.71%. However, this line of argument implicitly and wrongly equates the risk on public sector projects with that for the optimal portfolio of risky and risk free assets. It also vastly underestimates the confidence interval on the discount rate primarily through ignoring uncertainty surrounding the expected return on risky assets.

Date: 2008
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DOI: 10.1080/17446540701720543

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