The Discounting Premium Puzzle: Survey evidence from professional economists

Christian Gollier, Frederick van Der Ploeg and Jiakun Zheng
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Christian Gollier: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Frederick van Der Ploeg: University of Oxford, CEPR - Center for Economic Policy Research, UvA - University of Amsterdam [Amsterdam] = Universiteit van Amsterdam
Jiakun Zheng: Renmin University of China = Université Renmin de Chine, AMU - Aix Marseille Université

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Abstract: We survey the attitude towards the risk-adjustment of efficient discount rates among the economics profession. Three-fourth of our respondents recommend adjusting discount rates to the risk profile of the project under scrutiny, in clear opposition to the standard practice of using a single discount rate in most public administrations around the world. For example, on average, respondents recommend using a larger discount rate for railway infrastructures than for hospitals and climate mitigation. We also observe that the degree of discounting discrimination between obviously different risk profiles remains rather limited in our sample. This generates a "discounting premium puzzle": economic experts want to penalize risky public projects much less than financial markets do for private investments. Finally, among experts supporting a single discount rate, there is no consensus about whether it should be based on the average cost of capital in the economy, the sovereign borrowing cost, or the Ramsey rule, yielding disagreement on its level.

Keywords: Risk premium; Project-specific discount rate; Survey evidence (search for similar items in EconPapers)
Date: 2023-10
Note: View the original document on HAL open archive server: https://hal.science/hal-04981354v1
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Published in Journal of Environmental Economics and Management, 2023, 122, pp.102882. ⟨10.1016/j.jeem.2023.102882⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04981354

DOI: 10.1016/j.jeem.2023.102882

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