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The most appropriate discount rate

Author

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  • Burgess, David F.
  • Zerbe, Richard O.

Abstract

The social opportunity cost of capital discount rate is the appropriate discount rate to use when evaluating government projects. It satisfies the fundamental rule that no project should be accepted that has a rate of return less than alternative available projects, and it ensures that worthy projects satisfy the potential Pareto test. The social time preference approach advocated by Moore et al. fails to satisfy either of these criteria even in the unlikely case that the private sector behaves myopically with respect to a project’s future benefits and costs.

Suggested Citation

  • Burgess, David F. & Zerbe, Richard O., 2013. "The most appropriate discount rate," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 4(3), pages 391-400, December.
    • Handle: RePEc:cup:jbcoan:v:4:y:2013:i:03:p:391-400_00
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    Citations

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    Cited by:

    1. Peter Abelson & Tim Dalton, 2018. "Choosing the Social Discount Rate for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(1), pages 52-67, March.
    2. Szekeres, Szabolcs, 2023. "The simple answer to the Social Discount Rate question," MPRA Paper 117843, University Library of Munich, Germany.
    3. Tamai, Toshiki, 2023. "The rate of discount on public investments with future bias in an altruistic overlapping generations model," European Journal of Political Economy, Elsevier, vol. 79(C).
    4. Ginés de Rus, 2014. "The economic evaluation of infrastructure investment. Some inescapable tradeoffs," Working Papers 2014-16, FEDEA.
    5. Moore, Mark A. & Boardman, Anthony E. & Vining, Aidan R., 2013. "The choice of the social discount rate and the opportunity cost of public funds," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 4(3), pages 401-409, December.
    6. Spackman, Michael, 2021. "Social discounting and the cost of public funding in practice," LSE Research Online Documents on Economics 111490, London School of Economics and Political Science, LSE Library.
    7. Broughel, James, 2021. "Rehabilitating the Opportunity Cost of Capital in Cost–Benefit Analysis," Working Papers 11433, George Mason University, Mercatus Center.
    8. de Rus, Ginés & Socorro, M. Pilar, 2014. "Access pricing, infrastructure investment and intermodal competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 374-387.
    9. Szekeres, Szabolcs, 2023. "Opportunity Cost of Capital, Marginal Cost of Funds and Numeraires in Benefit-Cost Analysis," MPRA Paper 120058, University Library of Munich, Germany, revised 06 Feb 2024.
    10. Monika Foltyn-Zarychta & Rafał Buła & Krystian Pera, 2021. "Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland," Energies, MDPI, vol. 14(3), pages 1-21, January.
    11. Szekeres, Szabolcs, 2024. "Resolving the Discounting Dilemma," MPRA Paper 120014, University Library of Munich, Germany.

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