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Discounting and the Social Time Preference Rate

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  • John Creedy

Abstract

This paper shows that the emphasis on a social time preference rate (defined as the sum of a pure time preference rate and the product of the elasticity of marginal valuation and the growth rate) in social evaluations where money values are discounted using the social time preference rate, is not advisable. It can give an entirely different, and arbitrary, ranking of alternative streams compared with the direct use of the pure time preference rate to discount ‘social welfare’ in each period (where social welfare is a — usually isoelastic — function of money values).

Suggested Citation

  • John Creedy, 2007. "Discounting and the Social Time Preference Rate," Department of Economics - Working Papers Series 989, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:989
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    File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0004/802777/989.pdf
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    References listed on IDEAS

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    4. William D. Nordhaus, 2006. "The "Stern Review" on the Economics of Climate Change," NBER Working Papers 12741, National Bureau of Economic Research, Inc.
    5. Sir Nicholas Stern, 2006. "What is the Economics of Climate Change?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 7(2), pages 1-10, April.
    6. Robert J. Brent, 2014. "Cost–Benefit Analysis and Health Care Evaluations, Second Edition," Books, Edward Elgar Publishing, number 14892.
    7. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
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    Cited by:

    1. Lawrence, C, 2009. "Identifying an Australian 'Shadow' Benefit / Cost Ratio for Public Projects," MPRA Paper 13336, University Library of Munich, Germany.
    2. John Creedy & Ross Guest, 2007. "Discounting and the Time Preference Rate: An Introduction," Department of Economics - Working Papers Series 993, The University of Melbourne.
    3. Kögel, Tomas, 2011. "On the Relation between Discounting of Climate Change and Edgeworth-Pareto Substitutability," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-12.

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