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Social Discounting Under Uncertainty: A cross-country comparison

  • Cameron Hepburn
  • Phoebe Koundouri
  • Ekaterini Panopoulou
  • Theologos Pantelidis

Recent research suggests that social cost-benefit analysis should be con- ducted with a declining discount rate. For instance, Newell and Pizer [23] show that the U.S. certainty-equivalent discount rate declines through time, using a simple autoregressive model of U.S. interest rates. This paper extends that line of research, estimating both autoregressive and regime-switching models of real interest rates to determine certainty- equivalent discount rates in Australia, Canada, Germany and the United Kingdom. It is found that the regime-switching model is a better model of past interest rate behavior for all four countries. This model tends to produce a more rapid decline in certainty-equivalent discount rates. The paper provides applications to the economics of climate change and nuclear power.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp177.

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Date of creation: 16 Nov 2006
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Handle: RePEc:iis:dispap:iiisdp177
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