scholarly journals DISCOUNTING FOR PUBLIC POLICY: A SURVEY

2017 ◽  
Vol 33 (3) ◽  
pp. 391-439 ◽  
Author(s):  
Hilary Greaves
Keyword(s):  
Climate Change ◽  
Public Policy ◽  
Interest Rates ◽  
Discount Rate ◽  
Ethical Theory ◽  
Time Preference ◽  
Social Discount Rate ◽  
The Social ◽  
Positive Rate ◽  
Technical Details

Abstract:This article surveys the debate over the social discount rate. The focus is on the economics rather than the philosophy literature, but the survey emphasizes foundations in ethical theory rather than highly technical details. I begin by locating the standard approach to discounting within the overall landscape of ethical theory. The article then covers the Ramsey equation and its relationship to observed interest rates, arguments for and against a positive rate of pure time preference, the consumption elasticity of utility, and the effect of various sorts of uncertainty on the discount rate. Climate change is discussed as an application.

scholarly journals Discounting Disentangled

2018 ◽  
Vol 10 (4) ◽  
pp. 109-134 ◽  
Author(s):  
Moritz A. Drupp ◽  
Mark C. Freeman ◽  
Ben Groom ◽  
Frikk Nesje
Keyword(s):  
Discount Rate ◽  
Time Preference ◽  
Wealth Effect ◽  
Social Discount Rate ◽  
Economic Values ◽  
Public Projects ◽  
Highly Sensitive ◽  
The Social ◽  
Ramsey Rule

The economic values of investing in long-term public projects are highly sensitive to the social discount rate (SDR). We surveyed over 200 experts to disentangle disagreement on the risk-free SDR into its component parts, including pure time preference, the wealth effect, and return to capital. We show that the majority of experts do not follow the simple Ramsey Rule, a widely used theoretical discounting framework, when recommending SDRs. Despite disagreement on discounting procedures and point values, we obtain a surprising degree of consensus among experts, with more than three-quarters finding the median risk-free SDR of 2 percent acceptable. (JEL C83, D61, D82, H43, Q58)

scholarly journals A time preference measure of the social discount rate for Iran

2018 ◽  
Vol 7 (1) ◽  
Author(s):  
Arian Daneshmand ◽  
Esfandiar Jahangard ◽  
Mahnoush Abdollah-Milani
Keyword(s):  
Discount Rate ◽  
Time Preference ◽  
Social Discount Rate ◽  
The Social ◽  
Preference Measure

Discounting under Risk

2021 ◽  
pp. 67-89
Author(s):  
Maddalena Ferranna
Keyword(s):  
Climate Change ◽  
Discount Rate ◽  
Public Policies ◽  
Social Discount Rate ◽  
Climate Policies ◽  
The Social ◽  
Ramsey Rule ◽  
Climate Damages

The debate on the economics of climate change has focused primarily on the choice of the social discount rate, which plays a key role in determining the desirability of climate policies given the long-term impacts of climate damages. Discounted utilitarianism and the Ramsey Rule dominate the debate on discounting. The chapter examines the appropriateness of the utilitarian framework for evaluating public policies. More specifically, it focuses on the risky dimension of climate change, and on the failure of utilitarianism in expressing both concerns for the distribution of risks across the population and concerns for the occurrence of catastrophic outcomes. The chapter shows how a shift to the prioritarian paradigm is able to capture those types of concerns, and briefly sketches the main implications for the choice of the social discount rate.

Discounting Future Climate Change and the Equilibrium Real Interest Rate

2020 ◽  
Author(s):  
Michael Bauer ◽  
Glenn Rudebusch
Keyword(s):  
Climate Change ◽  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Real Interest Rate ◽  
Discount Rates ◽  
Social Discount Rate ◽  
The Social ◽  
Macro Finance ◽  
Equilibrium Real Interest Rate

<p>The social discount rate is a crucial element required for valuing future damages from climate change. A consensus has emerged that discount rates should be declining with horizon, i.e., that the term structure of discount rates should have a negative <em>slope</em>. However, much controversy remains about the appropriate the overall <em>level</em> of discount rates.</p><p>We contribute to this debate from a macro-finance perspective, based on the insight that the equilibrium real interest rate, commonly known as r*, is the crucial determinant of the level of discount rates. First, we show theoretically how r* anchors the term structure of discount rates, using the modern macro-finance theory of the term structure of interest rates to provide a new perspective on classic results about social discount rates. Second, we show empirically that new macro-finance estimates of r* have fallen substantially over the past quarter century---consistent with a broader literature that documents such a secular decline. Bayesian estimation of a state-space model for Treasury yields, inflation and the real interest rate allows us to quantify both the decline in r* and the resulting downward shift of the term structure of social discount rates. Third, we document that this decline in r* and the social discount rate boosts the social cost of carbon and has quantitatively important implications for assessing the economic consequences of climate change. In essence, we demonstrate that the lower new normal for interest rates implies a higher new normal for the present value of climate change damages.</p>

Positive Social Time Preference

2021 ◽  
pp. 230-268
Author(s):  
Joseph Heath
Keyword(s):  
Discount Rate ◽  
Death Rate ◽  
Time Preference ◽  
Temporal Discounting ◽  
Social Discount Rate ◽  
Carbon Abatement ◽  
Social Time ◽  
Social Rate ◽  
The Social

Recent debates have made it clear that the choice of a social discount rate has enormous consequences for the amount of carbon abatement that will be recommended. The social discount rate determines how future costs are to be compared to present costs. Philosophers have been almost unanimous in endorsing the view that the only acceptable social rate of time preference is zero, a view that, taken literally, has either absurd or extremely radical implications. The first goal of this chapter is to show that the standard arguments against temporal preference are much less persuasive than they are usually taken to be. The second goal is to explore three different avenues of argument that could be adopted in order to show that temporal discounting of welfare may be permissible. The chapter concludes with a suggestion for how deontologists could accept a pure time preference derived from the current global death rate.

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