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Discounting disentangled

Drupp, Moritz A., Freeman, Mark C., Groom, Ben and Nesje, Frikk (2018) Discounting disentangled. American Economic Journal: Economic Policy, 10 (4). pp. 109-134. ISSN 1945-7731

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Abstract

The economic values of investing in long-term public projects are highly sensitive to the social discount rate (SDR). We surveyed over 200 experts to disentangle disagreement on the risk-free SDR into its component parts, including pure time preference, the wealth effect and return to capital. We show that the majority of experts do not follow the simple Ramsey Rule, a widely-used theoretical discounting framework, when recommending SDRs. Despite disagreement on discounting procedures and point values, we obtain a surprising degree of consensus among experts, with more than three-quarters finding the median risk-free SDR of 2 percent acceptable.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/pol/issues
Additional Information: © 2018 American Economic Association
Divisions: Geography & Environment
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency; Cost-Benefit Analysis
H - Public Economics > H4 - Publicly Provided Goods > H43 - Project Evaluation; Social Discount Rate
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy
Sets: Departments > Geography and Environment
Date Deposited: 06 Apr 2018 15:51
Last Modified: 20 Oct 2019 00:12
Projects: 01LA1104C
Funders: London School of Economics, STICERD, German National Academic Foundation, DAAD, BMBF, CREE, Professor Wilhelm Keilhau's Memorial Fund, UiO Energy
URI: http://eprints.lse.ac.uk/id/eprint/87375

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