Social Discount Rate
Economists use a social discount rate to evaluate future costs and benefits. To arrive at a suitable magnitude, market interest rates are adjusted for taxes, transactions costs, and risk. Over time the discount rate debate has become more complex. It is agreed that no single discount rate will apply to all choices, and that the proper discount rate will be context-dependent.
KeywordsArrow, K. Cost–benefit analysis Crowding out Deadweight loss Environmental issues Gamma discounting Infrastructure investment Inter-generational policies Value of life Posner, R. Productivity of capital Risk Social discount rate Time preference Utility
JEL ClassificationsD6 H43
- Arrow, K. 1971. Essays in the theory of risk-bearing. Amsterdam: North-Holland.Google Scholar
- Cowen, T., and D. Parfit. 1992. Against the social discount rate. In Justice across the generations: Philosophy, politics, and society, sixth series, ed. P. Laslett and J. Fishkin. New Haven: Yale University Press.Google Scholar
- Lind, R., et al. 1982. Discounting for time and risk in energy policy. Baltimore: Johns Hopkins University Press.Google Scholar
- Posner, R. 2004. Catastrophe: Risk and response. Oxford: Oxford University Press.Google Scholar