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Debating about the Discount Rate:The Basic Economic Ingredients

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  • Christian Gollier

Abstract

In this paper, we describe the determinants of the socially efficient discount rate for the distant future. We provide various arguments in favour of a decreasing term structure. They are based on a precautionary argument given the rapid accumulation oif uncertainties affecting the future growth of our economies. We recommend a real discount rate of 2% for time horizons exceeding 50 years. A risk premium should be added to this rate if the project yields cash flows that are positively correlated with the growth of the economy.

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  • Christian Gollier, 2010. "Debating about the Discount Rate:The Basic Economic Ingredients," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(s1), pages 38-55, May.
    • Handle: RePEc:bla:perwir:v:11:y:2010:i:s1:p:38-55
    DOI: 10.1111/j.1468-2516.2010.00327.x
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