Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/cup/jbcoan/v2y2011i02p1-20_00.html
   My bibliography  Save this article

Appropriate Discounting for Benefit-Cost Analysis

Author

Listed:
  • Burgess, David F.
  • Zerbe, Richard O.
Abstract
In order to be sensible about what discount rate to use one must be clear about its purpose. We suggest that its purpose is to help select those projects that will contribute more net benefits than some other discount rate. This approach, which is after all the foundation for benefit-cost analysis, helps to reconcile different suggested procedures for determining the discount rate. We suggest that the social opportunity cost of capital (SOC) is superior to other suggested approaches in its generality and its ease of use. We use the SOC to determine a range of real rates that vary between 6% and 8%. We suggest that approaches based on determination of preferences, which result in hyperbolic discounting, are less appropriate and less useful.

Suggested Citation

  • Burgess, David F. & Zerbe, Richard O., 2011. "Appropriate Discounting for Benefit-Cost Analysis," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 2(2), pages 1-20, April.
    • Handle: RePEc:cup:jbcoan:v:2:y:2011:i:02:p:1-20_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S219458880000018X/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Szekeres, Szabolcs, 2023. "Opportunity Cost of Capital, Marginal Cost of Funds and Numeraires in Cost-Benefit Analysis," MPRA Paper 118725, University Library of Munich, Germany.
    2. Peter Abelson & Tim Dalton, 2018. "Choosing the Social Discount Rate for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(1), pages 52-67, March.
    3. Szekeres, Szabolcs, 2023. "The simple answer to the Social Discount Rate question," MPRA Paper 117843, University Library of Munich, Germany.
    4. Scott Farrow & W. Kip Viscusi, 2013. "Towards principles and standards for the benefit–cost analysis of safety," Chapters, in: Scott O. Farrow & Richard Zerbe, Jr. (ed.), Principles and Standards for Benefit–Cost Analysis, chapter 5, pages 172-193, Edward Elgar Publishing.
    5. Frits Bos & Thomas van der Pol & Gerbert Romijn, 2018. "Should CBA’s include a correction for the marginal excess burden of taxation?," CPB Discussion Paper 370, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Mark A. Moore & Anthony E. Boardman & Aidan R. Vining, 2020. "Social Discount Rates for Seventeen Latin American Countries: Theory and Parameter Estimation," Public Finance Review, , vol. 48(1), pages 43-71, January.
    7. Johansson Per-Olov & Kriström Bengt, 2011. "Comment on Burgess and Zerbe: On Bank Market Power and the Social Discount Rate," Journal of Benefit-Cost Analysis, De Gruyter, vol. 2(3), pages 1-6, August.
    8. Monika Foltyn-Zarychta, 2021. "Future-Generation Perception: Equal or Not Equal? Long-Term Individual Discount Rates for Poland," Energies, MDPI, vol. 14(24), pages 1-19, December.
    9. Gillespie, Rob & Kragt, Marit E., 2012. "Accounting for Nonmarket Impacts in a Benefit-Cost Analysis of Underground Coal Mining in New South Wales, Australia," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 3(2), pages 1-29, May.
    10. Tamai, Toshiki, 2023. "The rate of discount on public investments with future bias in an altruistic overlapping generations model," European Journal of Political Economy, Elsevier, vol. 79(C).
    11. Stefano Mainardi, 2021. "Parametric and Semiparametric Efficiency Frontiers in Fishery Analysis: Overview and Case Study on the Falkland Islands," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(2), pages 169-210, June.
    12. Hansen Jason & Lipow Jonathan, 2013. "Accounting for systematic risk in benefit-cost analysis: a practical approach," Journal of Benefit-Cost Analysis, De Gruyter, vol. 4(3), pages 361-373, December.
    13. Burgess David F. & Zerbe Richard O., 2013. "The most appropriate discount rate," Journal of Benefit-Cost Analysis, De Gruyter, vol. 4(3), pages 391-400, December.
    14. Abeer Al Yaqoobi & Marcel Ausloos, 2022. "An Intergenerational Issue: The Equity Issues due to Public-Private Partnerships. The Critical Aspect of the Social Discount Rate Choice for Future Generations," Papers 2201.09064, arXiv.org.
    15. Donald F Vitaliano, 2016. "Benefits and Costs of the Erie Canal: A New View," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 42(4), pages 581-593, September.
    16. Akbulut, Hale & Seçilmiş, Erdem, 2019. "Estimation of a social discount rate for Turkey," Socio-Economic Planning Sciences, Elsevier, vol. 67(C), pages 78-85.
    17. A. Mitchell Polinsky & Paul N. Riskind, 2017. "Deterrence and the Optimal Use of Prison, Parole, and Probation," NBER Working Papers 23436, National Bureau of Economic Research, Inc.
    18. Monika Foltyn-Zarychta & Rafał Buła & Krystian Pera, 2021. "Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland," Energies, MDPI, vol. 14(3), pages 1-21, January.
    19. 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, De Gruyter, vol. 4(1), pages 1-16, March.
    20. Rafał Buła & Monika Foltyn-Zarychta, 2022. "Declining Discount Rates for Energy Policy Investments in CEE EU Member Countries," Energies, MDPI, vol. 16(1), pages 1-27, December.
    21. Moore, Mark A. & Boardman, Anthony E. & Vining, Aidan R., 2013. "The choice of the social discount rate and the opportunity cost of public funds," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 4(3), pages 401-409, December.
    22. Szekeres, Szabolcs, 2024. "Resolving the Discounting Dilemma," MPRA Paper 120014, University Library of Munich, Germany.
    23. Frits Bos & Thomas van der Pol & Gerbert Romijn, 2018. "Should CBA’s include a correction for the marginal excess burden of taxation?," CPB Discussion Paper 370.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    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:cup:jbcoan:v:2:y:2011:i:02:p:1-20_00. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/bca .

    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.