IDEAS home Printed from https://ideas.repec.org/a/anr/refeco/v15y2023p115-125.html
   My bibliography  Save this article

Introduction to the ARFE Theme on the Social Discount Rate

Author

Listed:
  • Deborah Lucas

    (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA)

Abstract

Governments allocate a large share of real and financial capital globally, and their choices of discount rates for project and policy evaluation have a first-order effect on social welfare. The importance of adopting a principles-based approach to selecting discount rates has new urgency in light of the very long horizons over which the benefits and costs of policies to address climate change are being evaluated. The four articles in this theme provide an interpretive overview of the literature on many of the theoretical, practical, legal, and philosophical considerations for discount rate selection by governments. This introduction summarizes the main points of each article and highlights some of the common threads that emerge. These include the importance of using risk-adjusted rates, the problems that arise when discount rates are chosen to be artificially low, and the large disconnect between common government practices and the principles of financial economics.

Suggested Citation

  • Deborah Lucas, 2023. "Introduction to the ARFE Theme on the Social Discount Rate," Annual Review of Financial Economics, Annual Reviews, vol. 15(1), pages 115-125, November.
  • Handle: RePEc:anr:refeco:v:15:y:2023:p:115-125
    DOI: 10.1146/annurev-financial-111820-084531
    as

    Download full text from publisher

    File URL: https://doi.org/10.1146/annurev-financial-111820-084531
    Download Restriction: Full text downloads are only available to subscribers. Visit the abstract page for more information.

    File URL: https://libkey.io/10.1146/annurev-financial-111820-084531?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    social discount rate; government valuation; public investment; cost of carbon; intergenerational trade-offs;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:anr:refeco:v:15:y:2023:p:115-125. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: http://www.annualreviews.org (email available below). General contact details of provider: http://www.annualreviews.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.