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Theory and Practice in the Choice of Social Discount Rate for Cost-Benefit Analysis: A Survey

Author

Listed:
  • Juzhong Zhuang

    (Asian Development Bank)

  • Zhihong Liang

    (University of Guelph)

  • Tun Lin

    (Asian Development Bank)

  • Franklin de Guzman

    (Asian Development Bank)

Abstract

The choice of an appropriate social discount rate for cost-benefit analysis of public projects has long been a contentious issue and subject to intense debate among economists. This debate has gained new impetus from the recent discussions on the economics of climate change. The purpose of this paper is to survey theories and practices in the choice of the social discount rate. More specifically, the paper examines economic arguments for discounting future benefits and costs and analytical approaches to the choice of the social discount rate, including how a social discount rate can be estimated empirically under each approach; and policy practices followed by countries around the world in the choice of the social discount rate. This paper is intended as a reference material on project economic analysis for ADB staff, consultants, and concerned government officials in developing member countries.

Suggested Citation

  • Juzhong Zhuang & Zhihong Liang & Tun Lin & Franklin de Guzman, 2007. "Theory and Practice in the Choice of Social Discount Rate for Cost-Benefit Analysis: A Survey," ADB Economics Working Paper Series 94, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0094
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    References listed on IDEAS

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    1. repec:bla:econom:v:38:y:1971:i:152:p:395-412 is not listed on IDEAS
    2. SANDMO, Agnar & DREZE, Jacques H., 1971. "Discount rates for public investment in closed and open economies," LIDAM Reprints CORE 98, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Cited by:

    1. Krzysztof Jarosinski, 2021. "Cost-Effectiveness Analysis (CEA) of Public Investment Projects," European Research Studies Journal, European Research Studies Journal, vol. 0(3 - Part ), pages 769-786.
    2. Chelli, Alessia & Brander, Luke & Geneletti, Davide, 2025. "Cost-Benefit analysis of urban nature-based solutions: A systematic review of approaches and scales with a focus on benefit valuation," Ecosystem Services, Elsevier, vol. 71(C).
    3. Fatih Karanfil & Axel Pierru, 2024. "Energy Transition in Oil-Dependent Economies: Public Discount Rates for Investment Project Evaluation," The Energy Journal, , vol. 45(1_suppl), pages 63-88, November.
    4. Morretta, Valentina & Florio, Massimo & Landoni, Matteo, 2023. "The social value of Earth observation: A new evaluation framework for public high-tech infrastructures," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 407-419.

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    More about this item

    Keywords

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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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