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Social discounting under uncertainty: a cross-country comparison

Hepburn, Cameron, Koundouri, Phoebe, Panopoulou, Ekaterini and Pantelidis, Theologos (2009) Social discounting under uncertainty: a cross-country comparison. Journal of Environmental Economics and Management, 57 (2). pp. 140-150. ISSN 0095-0696

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Identification Number: 10.1016/j.jeem.2008.04.004


Recent research suggests that social cost-benefit analysis should be conducted with a declining discount rate. For instance Newell and Pizer [Discounting the distant future: how much do uncertain rates increase valuations? J. Environ. Econ. Manage. 46 (2003) 52–71] show that the US certainty-equivalent discount rate declines through time, using a simple autoregressive model of US interest rates. This paper extends that line of research, estimating both autoregressive and regime-switching models of real interest rates to determine certainty-equivalent discount rates in Australia, Canada, Germany and the UK. It is found that the regime-switching model is a better model of past interest rate behavior for all four countries. This model tends to produce a more rapid decline in certainty-equivalent discount rates. The paper provides applications to the economics of climate change and nuclear power.

Item Type: Article
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Additional Information: © 2008 Elsevier Inc.
Divisions: Grantham Research Institute
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 01 Mar 2011 11:46
Last Modified: 20 Jun 2021 01:43

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