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Discounting Inside the Washington D.C. Beltway

Author

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  • Coleman Bazelon
  • Kent Smetters

Abstract

This article focuses on how the choice of discount rate can dramatically affect policy choices. These policies include whether to build a bridge, whether to privatize a Power Marketing Administration which sells electricity generated by government-owned facilities such as dams, how much money should be spent on early-childhood education, or options for reforming Social Security. The ongoing challenge is to discount future costs or benefits in a way that matches the project's level of riskiness. We begin by discussing the underlying issues in choosing an appropriate discount rate. We then discuss the variety of different discount rates that are actually used by various Washington policymakers and the biases they often generate.

Suggested Citation

  • Coleman Bazelon & Kent Smetters, 1999. "Discounting Inside the Washington D.C. Beltway," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 213-228, Fall.
    • Handle: RePEc:aea:jecper:v:13:y:1999:i:4:p:213-228
    Note: DOI: 10.1257/jep.13.4.213
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.13.4.213
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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