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The Discount Rate: A Review of Opposing Viewpoint

Rajinder Bajwa

No 284462, 1975 Annual Meeting, August 10-13, Columbus, Ohio from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: The discount rate as an imposed or calculated rate of future returns to capital investment is a critical factor in the economic evaluation of proposed as well as private investment projects. For example, a government project that promises substantial net benefits when evaluated at a rate of 5 percent may well appear wasteful if the rate is even marginally greater, say 5 1/8 percent. At stake in determining the appropriate discount rate is the efficient allocation of resources between private and public sectors of the economy. The discount rate suggests which projects should be undertaken, and thus the proportion of the economy's activity that should be undertaken, by public agencies as opposed to the proportion that should remain in the private sector. So it is vital to understand what determines an 'appropriate' discount rate.

Keywords: Financial; Economics (search for similar items in EconPapers)
Date: 1975-08
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