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The discounting premium puzzle: Survey evidence from professional economists

Author

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  • Christian Gollier

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEPR - Center for Economic Policy Research - CEPR)

  • Frederick van der Ploeg

    (University of Oxford, CEPR - Center for Economic Policy Research - CEPR, UvA - University of Amsterdam [Amsterdam] = Universiteit van Amsterdam)

  • Jiakun Zheng

    (Renmin University of China = Université Renmin de Chine, China Financial Policy Research Center - Renmin University of China = Université Renmin de Chine, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

We surveyed economists' attitudes toward adjusting discount rates to the risk profile of public programs. Three-quarters of respondents recommend to use project-specific discount rates. For example, on average, respondents discount railway infrastructures more than hospitals and climate mitigation. But the degree of discount discrimination between distinct risk profiles of different projects is fairly limited in our sample given the differences in risk profiles for these projects. Economic experts thus penalize risky public projects far less than financial markets penalize private investments. We call this the "discount premium puzzle". Finally, among experts in favor of a single discount rate, there is no consensus on whether it should be based on the average cost of capital in the economy, the sovereign borrowing cost, or the Ramsey rule, which gives rise to disagreement over the level of the recommended discount rate.

Suggested Citation

  • Christian Gollier & Frederick van der Ploeg & Jiakun Zheng, 2023. "The discounting premium puzzle: Survey evidence from professional economists," Post-Print hal-04227459, HAL.
    • Handle: RePEc:hal:journl:hal-04227459
    DOI: 10.1016/j.jeem.2023.102882
    Note: View the original document on HAL open archive server: https://hal.science/hal-04227459
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Risk premium; Project-specific discount rate; Survey evidence;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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