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Determinants of variation in calculating a discount rate

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  • Van Dyke, James
  • Hu, Patricia

Abstract

This paper deals with discount-rate calculations from data for the period 1957–1982. The analysis is focused on methods used in calculating discount rates for project analysis. The approach involved 864 calculations of the real discount rate by varying four factors: the interest rate series, the length of the calculation period, the ending year of the calculation period, and the method of adjusting for inflation. Then a statistical analysis of variance was utilized to determine the relative contributions of variance from the four factors under consideration. The results indicate that the discount rates calculated from data within this period were not particularly stable and that periods of 5–15 yr may be too short for the purposes of calculating a long-term real discount rate.

Suggested Citation

  • Van Dyke, James & Hu, Patricia, 1989. "Determinants of variation in calculating a discount rate," Energy, Elsevier, vol. 14(10), pages 661-666.
    • Handle: RePEc:eee:energy:v:14:y:1989:i:10:p:661-666
    DOI: 10.1016/0360-5442(89)90093-5
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