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Properties of the Social Discount Rate in a Benthamite Framework with Heterogeneous Degrees of Impatience

  • Diego Nocetti

    ()

    (School of Business, Clarkson University, Potsdam, New York 13699)

  • Elyès Jouini

    ()

    (Ceremade, Université Paris-Dauphine, F-75016 Paris, France)

  • Clotilde Napp

    ()

    (CNRS, UMR7088, F-75016 Paris, France, and DRM, Université Paris-Dauphine, F-75016 Paris, France)

This paper derives the properties of the discount rate that should be applied to a public-sector project when the affected population has heterogeneous degrees of impatience. We show that, for any distribution of discount rates, the social discount rate has the following properties: it decreases over time, it is lower than the average of the discount rates in the population, and it converges to the discount rate of the most patient individual in the economy. These properties hold for both constant and decreasing individual discount rates. Finally, we evaluate how changes in the distribution of individual discount rates affect the social discount rate.

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File URL: http://dx.doi.org/10.1287/mnsc.1080.0904
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 54 (2008)
Issue (Month): 10 (October)
Pages: 1822-1826

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Handle: RePEc:inm:ormnsc:v:54:y:2008:i:10:p:1822-1826
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