Declining Discount Rates and the Evaluation of Public Investments
Since public projects and programs have consequences that extend across time, discounting future outcomes is of special interest in determining the suitable public policy. Traditionally, constant discounting was viewed as the appropriate basis for evaluating public investments, but in the last few years the use of declining discount rates has emerged as a credible alternative. On the one hand, several studies in behavioural sciences have yielded evidence that a person has a declining rate of time preference. On the other hand, growing concerns about the well-being of future generations, especially for very long term impacts of today's decisions, were on the origin of defence of the use of particular discount rates. This paper discusses (a) the rationales for using declining discount rates; (b) implications for prqect evaluation of the time-varying social discount rates adopted recently by many countries for use in cost-benefit analyses.
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