Embedded Discounting

Daniel Møller Sneum, Emilie Rosenlund Soysal, Frikk Nesje and Mark C. Freeman

No 10689, CESifo Working Paper Series from CESifo

Abstract: The appraisal of public investments is subject to formal guidelines which often require input prices, such as forecasted energy prices. Using Danish guidelines as a case study, we explore the discounting assumptions in these input prices and find rates ranging from 2.97% to 17.5%, markedly different from the headline discount rate of 3.5%. This is not unique to Denmark and discrepancy in embedded discount rates can lead to false rejection of projects. We offer three possible explanations for such differences, based on positions on how the discount rate should be set.

Keywords: discounting; social discount rate; cost-benefit analysis; public guidelines (search for similar items in EconPapers)
JEL-codes: D61 H43 L51 Q48 (search for similar items in EconPapers)
Date: 2023
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp10689.pdf (application/pdf)

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:ces:ceswps:_10689

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().