The European Journal of Health Economics

, Volume 13, Issue 2, pp 127–144 | Cite as

Towards a social discount rate for the economic evaluation of health technologies in Germany: an exploratory analysis

  • Mareike Schad
  • Jürgen JohnEmail author
Original Paper


Over the last decades, methods for the economic evaluation of health care technologies were increasingly used to inform reimbursement decisions. For a short time, the German Statutory Health Insurance makes use of these methods to support reimbursement decisions on patented drugs. In this context, the discounting procedure emerges as a critical component of these methods, as discount rates can strongly affect the resulting incremental cost-effectiveness ratios. The aim of this paper is to identify the appropriate value of a social discount rate to be used by the German Statutory Health Insurance for the economic evaluation of health technologies. On theoretical grounds, we build on the widespread view of contemporary economists that the social rate of time preference (SRTP) is the adequate social discount rate. For quantifying the SRTP, we first apply the market behaviour approach, which assumes that the SRTP is reflected in observable market interest rates. As a second approach, we derive the SRTP from optimal growth theory by using the Ramsey equation. A major part of the paper is devoted to specify the parameters of this equation. Depending on various assumptions, our empirical findings result in the range of 1.75–4.2% for the SRTP. A reasonable base case discount rate for Germany, thus, would be about 3%. Furthermore, we deal with the much debated question whether a common discount rate for costs and health benefits or a lower rate for health should be applied in health economic evaluations. In the German social health insurance system, no exogenously fixed budget constraint does exist. When evaluating a new health technology, the health care decision maker is obliged to conduct an economic evaluation in order to examine whether there is an economically appropriate relation between the value of the health gains and the additional costs which are given by the value of the consumption losses due to the additional health care expenditures. Therefore, a discount rate lower than the SRTP for consumption should be applied if an increase in the consumption value of health is expected. However, given the limited empirical evidence on the relationship between consumption and the value of health, it is hardly possible to make reliable forecasts of this value. Regarding the practice of the German evaluation authority, it is not recommended to use differential discounting in the base case. Instead, the issue of differential discounting should be addressed in sensitivity analyses. Reducing the discount rate for health compared to the rate for costs by a figure in the range between near 0% and 3% may be considered to be appropriate for Germany.


Social discount rate Social rate of time preference Ramsey equation Differential discounting 

JEL Classification

I11 I18 I38 H43 H51 



The authors are grateful for the support provided by Martin Schellhorn. Financial support for this research was received from GlaxoSmithKline, Sanofi Pasteur MSD and Wyeth Pharma, which is gratefully acknowledged here. The authors have no conflict of interest that is directly relevant to the content of the manuscript.


  1. 1.
    German Institute for Quality and Efficiency (IQWIG): Allgemeine Methoden zur Bewertung von Verhältnissen zwischen Nutzen und Kosten - Version 1.0; October 12, 2009. []. Accessed 3 July 2010
  2. 2.
    Eckstein, O.: Investment criteria for economic development and the theory of intertemporal welfare economics. Quart. J. Econ. 71(1), 56–85 (1957)CrossRefGoogle Scholar
  3. 3.
    Marglin, S.A.: The social rate of discount and the optimal rate of investment. Quart. J. Econ. 77(1), 95–111 (1963)CrossRefGoogle Scholar
  4. 4.
    Feldstein, M.S.: The social time preference discount rate in cost benefit Analysis. Econ. J. 74(294), 360–379 (1964)CrossRefGoogle Scholar
  5. 5.
    Arrow, K.J.: Discounting and public investment criteria. In: Kneese, A.V., Smith, S.C. (eds.) Water Research, pp. 13–32. John Hopkins, Baltimore, London (1966)Google Scholar
  6. 6.
    Lind, R.C.: A primer on the major issues relating to the discount rate for evaluating national energy options. In: Lind, R.C. (ed.) Discounting for Time and Risk in Energy Policy, pp. 21–94. Resources for the Future, Washington, DC (1982)Google Scholar
  7. 7.
    Stiglitz, J.E.: The rate of discount for benefit-cost analysis and the theory of the second best. In: Layard, R., Glaister, S. (eds.) Cost-Benefit Analysis, 2nd edn, pp. 116–159. Cambridge University Press, Cambridge (1994)CrossRefGoogle Scholar
  8. 8.
    Boardman, A.E., Greenberg, D.H., Vining, A.R., Weimer, D.L.: Cost-Benefit Analysis: Concepts and Practice, 3rd edn. Pearson, Prentice Hall, Upper Saddle River (2006)Google Scholar
  9. 9.
    Ramsey, F.: A mathematical theory of savings. Econ. J. 38(152), 543–559 (1928)CrossRefGoogle Scholar
  10. 10.
    Claxton, K., Paulden, M., Gravelle, H., Brouwer, W., Culyer, A.J.: Discounting and decision making in the economic evaluation of health-care technologies. Health Econ. (2010), article first published online 28 June 2010. doi:  10.1002/hec.1612
  11. 11.
    Haveman, R.H.: The opportunity cost of displaced private spending and the social discount rate. Water Resour. Res. 5(5), 947–957 (1969)CrossRefGoogle Scholar
  12. 12.
    Sandmo, A., Dreze, J.H.: Discount rates for public investment in closed and open economies. Economica 38(152), 395–412 (1971)CrossRefGoogle Scholar
  13. 13.
    Feldstein, M.S.: The inadequacy of weighted discount rates. In: Layard, R. (ed.) Cost-Benefit Analysis, pp. 140–155. Penguin, London (1972)Google Scholar
  14. 14.
    Bradford, D.F.: Constraints on government investment opportunities and the choice of discount rate. Am. Econ. Rev. 65(5), 887–899 (1975)Google Scholar
  15. 15.
    Lind, R.C.: Reassessing the government’s discount rate: policy in light of new theory and data in a world economy with a high degree of capital mobility. J. Environ. Econ. Manage. 18(2), S8–S28 (1990)CrossRefGoogle Scholar
  16. 16.
    Lind, R.C.: Introduction. In: Lind, R.C. (ed.) Discounting for Time and Risk in Energy Policy, pp. 1–19. Resources for the Future, Washington, DC (1982)Google Scholar
  17. 17.
    Arrow, K.J., Lind, R.C.: Uncertainty and the evaluation of public investment decisions. Am. Econ. Rev. 60, 364–378 (1970)Google Scholar
  18. 18.
    Boardman, A.E., Greenberg, D.H., Vining, A.R., Weimer, D.L.: Cost-Benefit Analysis: Concepts and Practice, 2nd edn. Pearson, Prentice Hall, Upper Saddle River (2001)Google Scholar
  19. 19.
    Hepburn, C., Koundouri, P., Panopoulou, E., Pantelidis, T.: Social discounting under uncertainty: a cross-country comparison. J. Environ. Econ. Manage. 57, 140–150 (2009)CrossRefGoogle Scholar
  20. 20.
    Moore, M.A., Boardman, A.E., Vining, A.R., Weimer, D.L., Greenberg, D.H.: ‘Just give me a number!’ Practical values for the social discount rate. J. Policy Anal. Manage. 23(4), 789–812 (2004)CrossRefGoogle Scholar
  21. 21.
    Frederik, S., Loewenstein, G., O’Donoghue, T.: Time discounting and time preference: a critical review. J. Econ. Lit. 40, 351–401 (2002)CrossRefGoogle Scholar
  22. 22.
    Spackman, M.: Time discounting and of the cost of capital in government. Fisc. Stud. 25(4), 467–518 (2004)CrossRefGoogle Scholar
  23. 23.
    Evans, D.: A social discount rate for France. Appl. Econ. Lett. 11, 803–808 (2004)CrossRefGoogle Scholar
  24. 24.
    Evans, D.J.: The elasticity of marginal utility of consumption: estimates for 20 OECD countries. Fisc. Stud. 26(2), 197–224 (2005)CrossRefGoogle Scholar
  25. 25.
    Evans, D.J., Sezer, H.: Social discount rates for six major countries. Appl. Econ. Lett. 11, 557–560 (2004)CrossRefGoogle Scholar
  26. 26.
    Evans, D.J., Sezer, H.: Social discount rates for member countries of the European Union. J. Econ. Stud. 32(1), 47–59 (2005)CrossRefGoogle Scholar
  27. 27.
    Kula, E.: Social interest rate for public sector appraisal in the United Kingdom, the United States and Canada. Proj. Appraisal 2(3), 169–174 (1987)Google Scholar
  28. 28.
    Kula, E.: Estimation of a social rate of interest for India. J. Agric. Econ. 55(1), 91–99 (2004)CrossRefGoogle Scholar
  29. 29.
    Lopez, H.: The social discount rate: estimates for nine Latin American countries. Policy Research Working Paper 4639 (2008)Google Scholar
  30. 30.
    Pearce, D., Ulph, D.: A social discount rate for the UK. In: Pearce, D.W. (ed.) Environmental Economics: Essays in Ecological Economics and Sustainable Development, pp. 268–285. Edward Elgar, Cheltenham (1999)Google Scholar
  31. 31.
    Pigou, A.C.: The Economics of Welfare, 1952, 4th edn. Macmillan, London (1920)Google Scholar
  32. 32.
    Schelling, T.C.: Intergenerational discounting. Energy Policy 23(4/5), 395–401 (1995)CrossRefGoogle Scholar
  33. 33.
    Scott, M.F., Dowley, M.: The test rate of discount and changes in base-level income in the United Kingdom. Econ. J. 87, 219–241 (1977)CrossRefGoogle Scholar
  34. 34.
    Robinson, J.C.: Philosophical origins of the social rate of discount in cost-benefit analysis. Milbank Q. 68(2), 245–265 (1990)PubMedCrossRefGoogle Scholar
  35. 35.
    Arrow, K.J.: Criteria for social investment. Water Resour. Res. 1(1), 1–8 (1965)CrossRefGoogle Scholar
  36. 36.
    Spackman, M.: Social discount rates for the European Union: an overview. Working Paper No 2006-33, (2006)Google Scholar
  37. 37.
    Arrow, K.: Discounting, morality, and gaming. In: Portney, P.R., Weyant, J.P. (eds.) Discounting and Intergenerational Equity, pp. 13–21. Resources for the future, Washington, DC (1999)Google Scholar
  38. 38.
    Olsen, M., Bailey, M.: Positive time preference. J. Policy Econ. 89(1), 1–25 (1981)Google Scholar
  39. 39.
    Arrow, K.: The rate of discount for long-term public investment. In: Ashley, H., Rudman, R.L., Whipple, C. (eds.) Energy and the Environment, pp. 113–140. Pergamon, New York (1976)Google Scholar
  40. 40.
    Cowell, F.A., Gardiner, K.A.: Welfare weights. OFT Economic Research Paper, 1–43 (2000)Google Scholar
  41. 41.
    Fisher, I.: A statistical Method for Measuring Marginal Utility. The Economic Essays Contributed in Honour of J Bates, pp. 157–193. Macmillan, London (1927)Google Scholar
  42. 42.
    Frisch, R.: New Methods of Measuring Marginal Utility. J.C.B. Mohr, Tubingen (1932)Google Scholar
  43. 43.
    Fellner, W.: Operational utility: the theoretical background and a measurement. In: Fellner, W., Challis, A., Hall, J., Koopmans, T.C., Miller, J.P., Nerlove, M., Ruggles, R., et al. (eds.) Ten Economic Studies in the Tradition of Irving Fisher. Wiley, New York (1967)Google Scholar
  44. 44.
    Layard, R., Mayraz, G., Nickell, S.: The marginal utility of income. J. Public Econ. 92(8–9), 1846–1857 (2008)CrossRefGoogle Scholar
  45. 45.
    Evans, D., Kula, E., Sezer, H.: Regional welfare weights for the UK: England, Scotland, Wales and Northern Ireland. Reg. Stud. 39(7), 923–937 (2005)CrossRefGoogle Scholar
  46. 46.
    Selvanathan, S., Selvanathan, E.A.: A cross-country analysis of consumption patterns. Appl. Econ. 25(9), 1245–1259 (1993)CrossRefGoogle Scholar
  47. 47.
    Kula, E.: Derivation of social time preference rates for the United States and Canada. Quart. J. Econ. 99, 873–882 (1984)CrossRefGoogle Scholar
  48. 48.
    Evans, D.: The elevated status of the elasticity of marginal utility of consumption. Appl. Econ. Lett. 11, 443–447 (2004)CrossRefGoogle Scholar
  49. 49.
    Deaton, A.S., Muellbauer, J.: An almost ideal demand system. Am. Econ. Rev. 70(3), 312–326 (1980)Google Scholar
  50. 50.
    Organization of Co-Operation and Development: Taxing Wages 2006/2007, (2008)Google Scholar
  51. 51.
    Maddison, A.: The World Economy. Volume 1: A Millennial Perspective. Volume 2: Historical Statistics. OECD, Paris (2006)Google Scholar
  52. 52.
    Gollier, C.: Discounting an uncertain future. J. Public Econ. 85(2), 149–166 (2002)CrossRefGoogle Scholar
  53. 53.
    Gollier, C., Zeckhauser, R.: Aggregation of heterogeneous time preferences. J. Polit. Econ. 113(4), 878–896 (2005)CrossRefGoogle Scholar
  54. 54.
    Nocetti, D., Jouini, E., Napp, C.: Properties of the social discount rate in a Benthamite framework with heterogeneous degrees of impatience. Manage. Sci. 54(10), 1822–1826 (2008)CrossRefGoogle Scholar
  55. 55.
    Weitzman, M.L.: Why the far-distant future should be discounted at its lowest possible rate. J. Environ. Econ. Manage. 36(3), 201–208 (1998)CrossRefGoogle Scholar
  56. 56.
    Gollier, C., Weitzman, M.L.: How should the distant future be discounted when discount rates are uncertain? Econ. Lett. 107, 350–353 (2010)CrossRefGoogle Scholar
  57. 57.
    Weinstein, M.C., Stason, W.B.: Foundations of cost-effectiveness analysis for health and medical practices. N. Engl. J. Med. 296(13), 716–721 (1977)PubMedCrossRefGoogle Scholar
  58. 58.
    Keeler, J., Cretin, S.: Discounting of life saving and other non-monetary effects. Manage. Sci. 29, 300–306 (1983)CrossRefGoogle Scholar
  59. 59.
    Gravelle, H., Smith, D.: Discounting for health effects in cost-benefit and cost-effectiveness analysis. Health Econ. 10(7), 587–599 (2001)PubMedCrossRefGoogle Scholar
  60. 60.
    van Hout, B.A.: Discounting costs and effects: a reconsideration. Health Econ. 7, 581–594 (1998)PubMedCrossRefGoogle Scholar
  61. 61.
    Klok, R.M., Brouwer, W.B.F., Annemans, L.J.P., Bos, J.M., Postma, M.J.: Towards a healthier discount procedure. Expert Rev. Pharmacoecon. Outcomes Res. 5(1), 59–63 (2005)CrossRefGoogle Scholar
  62. 62.
    Claxton, K., Sculpher, M., Culyer, A., McCabe, C., Briggs, A., Akehurst, R., et al.: Discounting and cost-effectiveness in NICE—stepping back to sort out a confusion. Health Econ. 15, 1–4 (2006)PubMedCrossRefGoogle Scholar
  63. 63.
    Gravelle, H., Brouwer, W., Niessen, L., Postma, M., Rutten, F.: Discounting in economic evaluations: stepping forward towards optimal decision rules. Health Econ. 16, 307–317 (2007)PubMedCrossRefGoogle Scholar
  64. 64.
    Brouwer, W., Niessen, L., Postma, M., Rutten, F.: Need for differential discounting of costs and health effects in cost effectiveness analysis. Br. Med. J. 331, 446–448 (2005)CrossRefGoogle Scholar
  65. 65.
    Brouwer, W., van Hout, B., Rutten, F.: A fair approach to discounting future effects: taking a societal perspective. J. Health Serv. Res. Policy 5(2), 113–118 (2000)Google Scholar
  66. 66.
    Hall, R.E., Jones, C.I.: The value of life and the rise in health spending. Quart. J. Econ. 122(1), 39–72 (2007)CrossRefGoogle Scholar
  67. 67.
    Organization of Co-Operation and Development: Health statistics—health expenditure. 08.12.2008 ed (2008)Google Scholar
  68. 68.
    Costa, D.L., Kahn, M.E.: Changes in the value of life, 1940–1980. J. Risk Uncert. XXIX, 159–180 (2004)Google Scholar
  69. 69.
    Viscusi, W.K., Aldy, W.G.: The value of a statistical life: a critical review of market estimates throughout the world. J. Risk Uncert. XXVII, 5–76 (2003)Google Scholar
  70. 70.
    College voor Zorgverzekeringen (CVZ): Dutch Guidelines for Pharmacoeconomic Research (updated version), (2006)Google Scholar
  71. 71.
    Cleemput, I., van Wilder, P., Vrijens, F., Huybrechts, M., Ramekers, D.: Guidelines for Pharmacoeconomic Evaluations in Belgium. Belgian Health Care Knowledge Center (KCE), (2008)Google Scholar
  72. 72.
    National Institute for Health and Clinical Excellence: Guidance for Manufacturers and Sponsors. National Health Service (NHS) (2001)Google Scholar
  73. 73.
    Treasury, H.M.: The Green Book—Consultation Paper: Appraisal and Evaluation in Central Government. The Stationery Office, London (2004)Google Scholar
  74. 74.
    Evans, D.: Social discount rates for the European Union. Paper presented at the Cost-Benefit Analysis in the EU Conference. Milan, Italy (2006)Google Scholar
  75. 75.
    Agee, M.D., Crocker, T.D.: Parental altruism and child lead exposure: inferences from the demand for chelation therapy. J. Hum. Resour. 31(3), 677–691 (1996)CrossRefGoogle Scholar
  76. 76.
    Liu, J.T., Hammitt, J.K., Wang, J.D., Liu, J.L.: Mother’s willingness to pay for her own and her child’s health: a contingent valuation study in Taiwan. Health Econ. 9(4), 319–326 (2000)PubMedCrossRefGoogle Scholar
  77. 77.
    Agee, M.D., Crocker, T.D.: Transferring measures of adult health benefits to children: In: Organisation for economic co-operation and development. In: Economic Valuation of Environmental Health Risks to Children, pp. 159–185. Organisation for Economic Co-operation and Development (OECD), Paris (2006)Google Scholar
  78. 78.
    Sen, A.K.: Approaches to the choice of discount rates for social benefit-cost analysis. In: Lind, R.C. (ed.) Discounting for Time and Risk in Energy Policy, pp. 325–351. Resources for the Future, Washington, DC (1982)Google Scholar
  79. 79.
    Beckerman, W., Hepburn, C.: Ethics of the discount rate in the Stern Review on the economics of climate change. World Econ. 8(1), 187–210 (2007)Google Scholar
  80. 80.
    von der Schulenburg, J.-M.G., Greiner, W., Jost, F., Klusen, N., Kubin, M., Leidl, R., et al.: German recommendations on health economic evaluation: third and updated version of the Hanover Consensus. Value Health 11(4), 539–544 (2008)CrossRefGoogle Scholar
  81. 81.
    Krahn, M., Gafni, A.: Discounting in the economic evaluation of health care interventions. Med. Care 31(5), 403–418 (1993)PubMedCrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Helmholtz Zentrum München, German Research Center for Environmental HealthInstitute of Health Economics and Health Care ManagementMunich/NeuherbergGermany

Personalised recommendations