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- Arrow, K., et al.
(författare)
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Determining Benefits and Costs for Future Generations
- 2013
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Ingår i: Science. - 0036-8075. ; 341:6144, s. 349-350
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Tidskriftsartikel (refereegranskat)abstract
- In economic project analysis, the rate at which future benefits and costs are discounted relative to current values often determines whether a project passes the benefit-cost test. This is especially true of projects with long time horizons, such as those to reduce greenhouse gas (GHG) emissions. Whether the benefits of climate policies, which can last for centuries, outweigh the costs, many of which are borne today, is especially sensitive to the rate at which future benefits are discounted. This is also true of other policies, e.g., affecting nuclear waste disposal or the construction of long-lived infrastructure
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| 2. |
- Arrow, K. J., et al.
(författare)
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Should Governments Use a Declining Discount Rate in Project Analysis?
- 2014
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Ingår i: Review of Environmental Economics and Policy. - : University of Chicago Press. - 1750-6816 .- 1750-6824. ; 8:2, s. 145-163
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Tidskriftsartikel (refereegranskat)abstract
- Should governments use a discount rate that declines over time when evaluating the future benefits and costs of public projects? The argument for using a declining discount rate (DDR) is simple: if the discount rates that will be applied in the future are uncertain but positively correlated, and if the analyst can assign probabilities to these discount rates, then the result will be a declining schedule of certainty-equivalent discount rates. There is a growing empirical literature that estimates models of long-term interest rates and uses them to forecast the DDR schedule. However, this literature has been criticized because it lacks a connection to the theory of project evaluation. In benefit-cost analysis, the net benefits of a project in year t (in consumption units) are discounted to the present at the rate at which society would trade consumption in year t for consumption in the present. With simplifying assumptions, this leads to the Ramsey discounting formula, which results in a declining certainty-equivalent discount rate if the rate of growth in consumption is uncertain and if shocks to consumption are correlated over time. We conclude that the arguments in favor of a DDR are compelling and thus merit serious consideration by regulatory agencies in the United States.
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