Discounting and the Social Time Preference Rate

John Creedy

No 989, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: This paper shows that the emphasis on a social time preference rate (defined as the sum of a pure time preference rate and the product of the elasticity of marginal valuation and the growth rate) in social evaluations where money values are discounted using the social time preference rate, is not advisable. It can give an entirely different, and arbitrary, ranking of alternative streams compared with the direct use of the pure time preference rate to discount ‘social welfare’ in each period (where social welfare is a — usually isoelastic — function of money values).

Pages: 12 pages
Date: 2007
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Citations: View citations in EconPapers (3)

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