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Discounting and the Social Time Preference Rate

  • John Creedy

This paper shows that the emphasis on a social time preference rate (defined as the sum of a pure time preference rate and the product of the elasticity of marginal valuation and the growth rate) in social evaluations where money values are discounted using the social time preference rate, is not advisable. It can give an entirely different, and arbitrary, ranking of alternative streams compared with the direct use of the pure time preference rate to discount ‘social welfare’ in each period (where social welfare is a — usually isoelastic — function of money values).

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 989.

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Length: 12 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mlb:wpaper:989
Contact details of provider: Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
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  1. William D. Nordhaus, 2006. "The "Stern Review" on the Economics of Climate Change," NBER Working Papers 12741, National Bureau of Economic Research, Inc.
  2. Friedrich Wu, 2006. "What Could Brake China’s Rapid Ascent in the World Economy?," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 7(3), pages 63-87, July.
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