The Economic Opportunity Cost of Capital for Canada - An Empirical Update
AbstractThe social or economic discount rate is the threshold rate used to calculate the net present value of an investment project, a program, or a regulatory intervention to see whether the proposed expenditures are economically worthwhile to undertake. The size of the economic rate of discount has been a policy issue in Canada for many years. The debate has been primarily concerned with the empirical measurement of the economic opportunity cost of funds. The purpose of this paper is to reexamine and update the empirical estimation of what is the appropriate economic discount rate for Canada. The results suggest that estimates of the economic discount rate can range from 7.78 percent to 8.39 percent real. As a consequence, we conclude that for Canada an 8 percent real rate is an appropriate discount rate to use when calculating the economic net present value of the flows of economic benefits and costs over time.
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Bibliographic InfoPaper provided by JDI Executive Programs in its series Development Discussion Papers with number 2007-04.
Length: 25 pages
Date of creation: Jul 2007
Date of revision:
discount rates; opportunity cost; project evaluation;
Other versions of this item:
- Glenn Jenkins & Chun-Yan Kuo, 2007. "The Economic Opportunity Cost of Capital for Canada - An Empirical Update," Working Papers 1133, Queen's University, Department of Economics.
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
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