The Choice For Social Discount Rate

Discounting is used to mean any process of revaluing a future event, service or product, to give a present equivalent value (present value).While there are many ways of determining a discount rate for private investment, when it comes to governments, things turn more complicated. Sometimes data is elusive or hard to interpret or there might be inconsistencies among sets of stated and imputed discount rates. Therefore politically derived discount rates are a cause for doubt and are unlikely to reflect future values appropriately. Theories proved that the decision of individuals in their political capacity as citizens are unlike those made in their economic capacity as consumers. Experiments found that individuals chose a lower discount rate as being appropriate for public than for personal decisions. Discounting helps in the process of investment analysis and other decisions between present and future. Those who analyze projects need to judge which ones are worthwhile so they need to compare the value of early costs with that of benefits and values of cash flows expected to be received at different points in time. Only when all cash flows have been discounted to equivalent values at the same point in time can discounted benefits be evaluated. Looking at some examples and at the Rosia Montana Project, a large scale and long term project, the paper evaluates some of the “choices for social discount rate” raises some questions and brings suggestions towards the steps that the governments (and particular Romanian) should do, to bring objectivity and transparency in investment decisions.