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The nature of discounting

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  • Chen, Jing

Abstract

From monetary policies to the climate change problem, from the burden of private credit card debts to the evaluation of public projects, discount rate is the central issue, yet there is little clear understanding about the nature of discounting. In this paper, applying a newly developed production theory, we discuss how discount rate is related to other factors in social systems, such as risk, duration of production, fixed cost in production and market size. The relations among different factors in a social system put constraints on the ranges of discount rate that are viable in particular environments. Our findings have strong policy implications. In a world of increasing cost of extracting natural resources, the continuation of low discount rate policy will generate wide gyration of social systems that we have witnessed in recent years.

Suggested Citation

  • Chen, Jing, 2012. "The nature of discounting," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 313-324.
    • Handle: RePEc:eee:streco:v:23:y:2012:i:3:p:313-324
    DOI: 10.1016/j.strueco.2012.06.001
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    References listed on IDEAS

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    Cited by:

    1. Jurgita Baranauskiene & Vilija Alekneviciene, 2019. "Comprehensive Measurement of Social Benefits Generated by Public Investment Projects," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 15(4), pages 195-210.

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    More about this item

    Keywords

    Discounting; Risk; Fixed cost; Monetary policy;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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