Discounting according to Output Type

Liqun Liu, Andrew J. Rettenmaier and Thomas R. Saving

Southern Economic Journal, 2005, vol. 72, issue 1, 213-223

Abstract: Federal discount rate policies advocate both a high rate representing the marginal productivity of capital and a low rate representing the government borrowing rate. These differential discount rate policies could be inconsistent and biased in favor of projects on which the lower discount rate is applied. This paper shows that the coexistence of different discount rates may be appropriate, depending on the type of project output. When a project's outputs are perfect substitutes for private consumption, both its costs and benefits should be discounted using the marginal productivity of capital. However, if the project's outputs are separable in the utility function, the benefits should be discounted using the net (of tax) rate of return.

Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/j.2325-8012.2005.tb00697.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:72:y:2005:i:1:p:213-223

Access Statistics for this article

More articles in Southern Economic Journal from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().