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The simple answer to the Social Discount Rate question

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  • Szekeres, Szabolcs

Abstract

The Social Time Preference Rate (STPR) correctly measures the rate of fall of the value of future benefits, while the Social Opportunity Cost Rate (SOCR) correctly measures the cost of capital of investment projects, but neither rate can correctly compute net present values (NPV) by itself. This paper shows that there is no choice, both must be used simultaneously, a method that is equivalent to shadow pricing capital. This reconciles the two approaches, as their joint use satisfies both of their requirements. Disagreements will remain, however, as reviewed in the paper, about the value of both rates.

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  • Szekeres, Szabolcs, 2023. "The simple answer to the Social Discount Rate question," MPRA Paper 117843, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117843
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    References listed on IDEAS

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    5. Szekeres, Szabolcs, 2020. "Correcting the Error in Gamma Discounting," MPRA Paper 102232, University Library of Munich, Germany, revised 27 Jul 2020.
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    More about this item

    Keywords

    Social discount rate; Prescriptive discounting; Descriptive discounting; Two-rate discounting; Declining discount rates; Ramsey rule.;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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