IDEAS home Printed from https://ideas.repec.org/p/hhs/osloec/2015_020.html
   My bibliography  Save this paper

Discounting Disentangled

Author

Listed:
  • Drupp, Moritz A.

    (Department of Economics, University of Kiel, Germany)

  • Freeman, Mark C.

    (School of Business and Economics, Loughborough University, United Kingdom)

  • Groom, Ben

    (Department of Geography and Environment, London School of Economics, United Kingdom)

  • Nesje, Frikk

    (Dept. of Economics, University of Oslo)

Abstract

As the most important driver of long-term project evaluation, from climate change policy to infrastructure investments, the social discount rate (SDR) has been subject to heated debate among economists. To uncover the extent and sources of disagreement, we report the results of a survey of over 200 experts that disentangles the long-term SDR into its component parts: the pure rate of time preference, the wealth eff ect, and the real risk-free interest rate. The mean recommended SDR is 2.27 percent, with a range from 0 to 10 percent. Despite disagreement on point values, more than three-quarters of experts are comfortable with the median SDR of 2 percent, and over 90 percent find an SDR in the range of 1 to 3 percent acceptable. Our disentangled data reveal that only a minority of responses are consistent with the Ramsey Rule, the theoretical framework dominating discounting policy. Instead, experts recommend that governmental discounting guidance should be updated to deal with uncertainty, relative prices, and alternative ethical approaches.

Suggested Citation

  • Drupp, Moritz A. & Freeman, Mark C. & Groom, Ben & Nesje, Frikk, 2015. "Discounting Disentangled," Memorandum 20/2015, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2015_020
    as

    Download full text from publisher

    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2015/memo-20-2015.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Necker, Sarah, 2014. "Scientific misbehavior in economics," Research Policy, Elsevier, vol. 43(10), pages 1747-1759.
    2. Cropper, Maureen, 2012. "How Should Benefits and Costs Be Discounted in an Intergenerational Context?," RFF Working Paper Series dp-12-42, Resources for the Future.
    3. Arrow, Kenneth J. & Cropper, Maureen L. & Gollier, Christian & Groom, Ben & Heal, Geoffrey M. & Newell, Richard G. & Nordhaus, William D. & Pindyck, Robert S. & Pizer, William A. & Portney, Paul R. & , 2012. "How Should Benefits and Costs Be Discounted in an Intergenerational Context? The Views of an Expert Panel," RFF Working Paper Series dp-12-53, Resources for the Future.
    4. Pierre-Philippe Combes & Laurent Linnemer, 2010. "Inferring Missing Citations: A Quantitative Multi-Criteria Ranking of all Journals in Economics," Working Papers halshs-00520325, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kollenberg, Sascha & Taschini, Luca, 2016. "Emissions trading systems with cap adjustments," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 20-36.
    2. Moritz Drupp & Mark Freeman & Ben Groom & Frikk Nesje, 2015. "Discounting disentangled: an expert survey on the determinants of the long-term social discount rate," GRI Working Papers 196a, Grantham Research Institute on Climate Change and the Environment.
    3. J. Doyne Farmer & John Geanakoplos & Matteo G. Richiardi & Miquel Montero & Josep Perelló & Jaume Masoliver, 2024. "Discounting the Distant Future: What Do Historical Bond Prices Imply about the Long-Term Discount Rate?," Mathematics, MDPI, vol. 12(5), pages 1-25, February.
    4. W. A. Brock & A. Xepapadeas, 2015. "Modeling Coupled Climate, Ecosystems, and Economic Systems," Working Papers 2015.66, Fondazione Eni Enrico Mattei.
    5. Bernard Lapeyre & Emile Quinet, 2017. "A Simple GDP-based Model for Public Investments at Risk," Post-Print hal-01666574, HAL.
    6. Freeman, Mark C. & Groom, Ben, 2016. "How certain are we about the certainty-equivalent long term social discount rate?," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 152-168.
    7. Eric Fesselmeyer & Haoming Liu & Alberto Salvo, 2022. "Declining discount rates in Singapore's market for privately developed apartments," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(2), pages 330-350, March.
    8. Moore, Mark A. & Boardman, Anthony E. & Vining, Aidan R., 2013. "More appropriate discounting: the rate of social time preference and the value of the social discount rate," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 4(1), pages 1-16, March.
    9. Knoke, Thomas & Paul, Carola & Härtl, Fabian, 2017. "A critical view on benefit-cost analyses of silvicultural management options with declining discount rates," Forest Policy and Economics, Elsevier, vol. 83(C), pages 58-69.
    10. Warren, Liz & Seal, Will, 2018. "Using investment appraisal models in strategic negotiation: The cultural political economy of electricity generation," Accounting, Organizations and Society, Elsevier, vol. 70(C), pages 16-32.
    11. Barrage, Lint, 2018. "Be careful what you calibrate for: Social discounting in general equilibrium," Journal of Public Economics, Elsevier, vol. 160(C), pages 33-49.
    12. Fesselmeyer, Eric & Liu, Haoming & Salvo, Alberto, 2016. "How Do Households Discount over Centuries? Evidence from Singapore's Private Housing Market," IZA Discussion Papers 9862, Institute of Labor Economics (IZA).
    13. Eli P. Fenichel & Matthew J. Kotchen & Ethan T. Addicott, 2017. "Even the Representative Agent Must Die: Using Demographics to Inform Long-Term Social Discount Rates," NBER Working Papers 23591, National Bureau of Economic Research, Inc.
    14. Tom Huppertz & Bo P. Weidema & Simon Standaert & Bernard De Caevel & Elisabeth van Overbeke, 2019. "The Social Cost of Sub-Soil Resource Use," Resources, MDPI, vol. 8(1), pages 1-17, January.
    15. Bernard Lapeyre & Emile Quinet, 2017. "A Simple GDP-based Model for Public Investments at Risk," PSE-Ecole d'économie de Paris (Postprint) hal-01666574, HAL.
    16. Jan Kersting & Vicki Duscha & Matthias Weitzel, 2017. "Cooperation on Climate Change under Economic Linkages: How the Inclusion of Macroeconomic Effects Affects Stability of a Global Climate Coalition," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    17. Rautiainen, Aapo & Lintunen, Jussi, 2017. "Social Cost of Forcing: A Basis for Pricing All Forcing Agents," Ecological Economics, Elsevier, vol. 133(C), pages 42-51.
    18. Cees A. Withagen, 2018. "The Social Cost of Carbon and the Ramsey Rule," CESifo Working Paper Series 7359, CESifo.
    19. Lugovoy, O. & Polbin, A., 2016. "On Intergenerational Distribution of the Burden of Greenhouse Gas Emissions," Journal of the New Economic Association, New Economic Association, vol. 31(3), pages 12-39.
    20. Cees Withagen, 2022. "On Simple Rules for the Social Cost of Carbon," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(2), pages 461-481, June.

    More about this item

    Keywords

    Social discount rate; project appraisal; expert opinions; disagreement.;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:osloec:2015_020. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mari Strønstad Øverås (email available below). General contact details of provider: https://edirc.repec.org/data/souiono.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.