PublikationDiscounting Disentangled
8. November 2018
Drupp, M.A., Freeman, M.C., Groom, B. and Nesje , F. (2018). Discounting Disentangled. American Economic Journal: Economic Policy 10(4): 109-134.
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 discount- ing 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.