Discounting Disentangled

Moritz Drupp, Mark C. Freeman (), Ben Groom and Frikk Nesje
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Mark C. Freeman: School of Business and Economics, Loughborough University, United Kingdom

No 20/2015, Memorandum from Oslo University, Department of Economics

Abstract: As the most important driver of long-term project evaluation, from climate change policy to infrastructure investments, the social discount rate (SDR) has been subject to heated debate among economists. To uncover the extent and sources of disagreement, we report the results of a survey of over 200 experts that disentangles the long-term SDR into its component parts: the pure rate of time preference, the wealth eff ect, and the real risk-free interest rate. The mean recommended SDR is 2.27 percent, with a range from 0 to 10 percent. Despite disagreement on point values, more than three-quarters of experts are comfortable with the median SDR of 2 percent, and over 90 percent find an SDR in the range of 1 to 3 percent acceptable. Our disentangled data reveal that only a minority of responses are consistent with the Ramsey Rule, the theoretical framework dominating discounting policy. Instead, experts recommend that governmental discounting guidance should be updated to deal with uncertainty, relative prices, and alternative ethical approaches.

Keywords: Social discount rate; project appraisal; expert opinions; disagreement. (search for similar items in EconPapers)
JEL-codes: D61 H43 Q58 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2015-11-30
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Discounting Disentangled (2018)
Working Paper: Discounting disentangled (2018)
Working Paper: Discounting disentangled (2015)
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