Discounting Disentangled

Moritz A. Drupp, Mark C. Freeman, Ben Groom & Frikk Nesje

Photo: American Economic Journal: Economic Policy

Published in:

American Economic Journal: Economic Policy, Volume 10, No. 4, November 2018.

DOI: 10.1257/pol.20160240

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.

Published July 19, 2019 2:50 PM - Last modified July 19, 2019 2:50 PM