Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 20/2015: Discounting Disentangled

Moritz A. Drupp (), Mark C. Freeman (), Ben Groom () and Frikk Nesje ()
Additional contact information
Moritz A. Drupp: Department of Economics, University of Kiel, Germany
Mark C. Freeman: School of Business and Economics, Loughborough University, United Kingdom
Ben Groom: Department of Geography and Environment, London School of Economics, United Kingdom
Frikk Nesje: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway

Abstract: As the most important driver of long-term project evaluation, from climate change policy to infrastructure investments, the social discount rate (SDR) has been subject to heated debate among economists. To uncover the extent and sources of disagreement, we report the results of a survey of over 200 experts that disentangles the long-term SDR into its component parts: the pure rate of time preference, the wealth eff ect, and the real risk-free interest rate. The mean recommended SDR is 2.27 percent, with a range from 0 to 10 percent. Despite disagreement on point values, more than three-quarters of experts are comfortable with the median SDR of 2 percent, and over 90 percent find an SDR in the range of 1 to 3 percent acceptable. Our disentangled data reveal that only a minority of responses are consistent with the Ramsey Rule, the theoretical framework dominating discounting policy. Instead, experts recommend that governmental discounting guidance should be updated to deal with uncertainty, relative prices, and alternative ethical approaches.

Keywords: Social discount rate; project appraisal; expert opinions; disagreement.

JEL-codes: D61; H43; Q58

44 pages, November 30, 2015

Full text files 

memo-20-2015.pdf PDF-file

Download statistics

Questions (including download problems) about the papers in this series should be directed to Mari Strønstad Øverås ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:osloec:2015_020This page generated on 2024-09-13 22:16:46.