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The social discount rate : estimates for nine Latin American countries

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  • Lopez, Humberto

Abstract

The social discount rate measures the rate at which a society would be willing to trade present for future consumption. As such it is one of the most critical inputs needed for cost-benefit analysis. This paper presents estimates of the social discount rates for nine Latin American countries. It is argued that if the recent track record in terms of growth in the region is indicative of future performance, estimates of the social discount rate would be in the 3-4 percent range. However, to the extent that the region improves on its past performance, the social discount rate to be used in the evaluation of projects would increase to the 5-7 percent range. The paper also argues that if the social planner gives a similar chance to the low and high growth scenario, the discount rate should be dependent on the horizon of the project, declining from 4.4 percent for a 25-year horizon to less than 4 percent for a 100-year horizon.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4639.

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Date of creation: 01 Jun 2008
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Handle: RePEc:wbk:wbrwps:4639

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Related research

Keywords: Debt Markets; Economic Theory&Research; Inequality; Achieving Shared Growth;

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References

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  1. David J. Evans, 2005. "The elasticity of marginal utility of consumption: estimates for 20 OECD countries," Fiscal Studies, Institute for Fiscal Studies, vol. 26(2), pages 197-224, June.
  2. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  3. David Evans & Haluk Sezer, 2004. "Social discount rates for six major countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(9), pages 557-560.
  4. Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
  5. Erhun Kula, 2004. "Estimation of a Social Rate of Interest for India," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(1), pages 91-99.
  6. Tjalling C. Koopmans, 1959. "Stationary Ordinal Utility and Impatience," Cowles Foundation Discussion Papers 81, Cowles Foundation for Research in Economics, Yale University.
  7. David Evans, 2004. "A social discount rate for France," Applied Economics Letters, Taylor & Francis Journals, vol. 11(13), pages 803-808.
  8. Otto Eckstein, 1961. "A Survey of the Theory of Public Expenditure Criteria," NBER Chapters, in: Public Finances: Needs, Sources, and Utilization, pages 439-504 National Bureau of Economic Research, Inc.
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Cited by:
  1. Halicioglu, Ferda & Karatas, Cevat, 2011. "A social discount rate for Turkey," MPRA Paper 32925, University Library of Munich, Germany.
  2. Mareike Schad & J├╝rgen John, 2012. "Towards a social discount rate for the economic evaluation of health technologies in Germany: an exploratory analysis," The European Journal of Health Economics, Springer, vol. 13(2), pages 127-144, April.
  3. Thomopoulos, N. & Grant-Muller, S. & Tight, M.R., 2009. "Incorporating equity considerations in transport infrastructure evaluation: Current practice and a proposed methodology," Evaluation and Program Planning, Elsevier, vol. 32(4), pages 351-359, November.

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