The Social Rate of Time Preference and the Social Discount Rate

2018 ◽  
Author(s):  
Mark Moore ◽  
Aidan Vining
Keyword(s):  
Discount Rate ◽  
Time Preference ◽  
Social Discount Rate ◽  
Social Rate ◽  
The Social

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.

Climate Ethics: Justifying a Positive Social Time Preference

2017 ◽  
Vol 14 (4) ◽  
pp. 435-462 ◽  
Author(s):  
Joseph Heath
Keyword(s):  
Discount Rate ◽  
Time Preference ◽  
Reflective Equilibrium ◽  
Climate Change Policy ◽  
Temporal Discounting ◽  
Social Discount Rate ◽  
Social Time ◽  
Change Policy ◽  
Social Rate ◽  
The Social

Recent debates over climate change policy have made it clear that the choice of a social discount rate has enormous consequences for the amount of mitigation that will be recommended. The social discount rate determines how future costs are to be compared to present costs. Philosophers, however, 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 paper 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 two different avenues of argument that could be adopted, in order to show that temporal discounting of welfare may be permissible. The first involves simply an application of the method of reflective equilibrium, while the second involves consideration of the way that our abstract moral commitments are institutionalized.

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

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 The choice of the social discount rate and the opportunity cost of public funds

2013 ◽  
Vol 4 (03) ◽  
pp. 401-409 ◽  
Author(s):  
Mark A. Moore ◽  
Anthony E. Boardman ◽  
Aidan R. Vining
Keyword(s):  
Discount Rate ◽  
Opportunity Cost ◽  
Capital Investment ◽  
Private Investment ◽  
Social Discount Rate ◽  
Public Funds ◽  
Benefit Cost Analysis ◽  
Social Rate ◽  
The Social ◽  
Government Project

The decades-old literature on the correct method for choosing and estimating a social discount rate (SDR) has resulted in two, largely opposing viewpoints. This note seeks to clarify the key sources of disagreement between these two camps. One view advocates that the choice should be based chiefly on the social opportunity cost of the return to foregone private capital investment (SOC), and suggests a SDR of around 7%. The other viewpoint, expressed by the authors, argues that the choice should be based on the social rate of time preference (STP), the rate at which society is willing to trade present for future consumption, suggesting a SDR of around 3.5%. Because of the fundamentally normative basis of the SDR choice, neither approach generates testable hypotheses that would allow falsification. For government project evaluation, the choice ultimately depends on the opportunity cost of public funds, which in turn depends on how fiscal policy actually operates. The STP approach contends that governments set targets for deficits and public debt, so that a marginal government project will be tax-financed, largely crowding out current consumption. The SOC belief is that governments set revenue targets, so that any government project will be deficit-financed on the margin, which will largely crowd out private investment. The authors also argue that a SDR based on the STP approach is appropriate for: benefit-cost analysis of government regulations, self-financing government projects, and government cost-effectiveness studies.

scholarly journals Discounting and Climate Policy

2020 ◽  
Author(s):  
Frederick van der Ploeg
Keyword(s):  
Discount Rate ◽  
Carbon Tax ◽  
Relative Price ◽  
Inequality Aversion ◽  
Social Discount Rate ◽  
Policy Makers ◽  
Social Rate ◽  
The Social ◽  
Intergenerational Inequality ◽  
Over Time

The social rate of discount is a crucial driver of the social cost of carbon (SCC), that is, the expected present discounted value of marginal damages resulting from emitting one ton of carbon today. Policy makers should set carbon prices to the SCC using a carbon tax or a competitive permits market. The social discount rate is lower and the SCC higher if policy makers are more patient and if future generations are less affluent and policy makers care about intergenerational inequality. Uncertainty about the future rate of growth of the economy and emissions and the risk of macroeconomic disasters (tail risks) also depress the social discount rate and boost the SCC provided intergenerational inequality aversion is high. Various reasons (e.g., autocorrelation in the economic growth rate or the idea that a decreasing certainty-equivalent discount rate results from a discount rate with a distribution that is constant over time) are discussed for why the social discount rate is likely to decline over time. A declining social discount rate also emerges if account is taken from the relative price effects resulting from different growth rates for ecosystem services and of labor in efficiency units. The market-based asset pricing approach to carbon pricing is contrasted with a more ethical approach to policy making. Some suggestions for further research are offered.

scholarly journals More appropriate discounting: the rate of social time preference and the value of the social discount rate

2013 ◽  
Vol 4 (1) ◽  
pp. 1-16 ◽  
Author(s):  
Mark A. Moore ◽  
Anthony E. Boardman ◽  
Aidan R. Vining
Keyword(s):  
Discount Rate ◽  
Time Preference ◽  
Shadow Price ◽  
Private Investment ◽  
Social Discount Rate ◽  
Benefit Cost Analysis ◽  
Public Projects ◽  
Social Time ◽  
The Social ◽  
Benefit Cost

Recently, a number of authors, including Burgess and Zerbe, have recommended the use of a real social discount rate (SDR) in the range of 6–8% in benefit-cost analysis (BCA) of public projects. They derive this rate based on the social opportunity cost of capital (SOC) method. In contrast, this article argues that the correct method is to discount future impacts based on the rate of social time preference (STP). Flows in or out of private investment should be multiplied by the shadow price of capital (SPC). Using this method and employing recent United States data, we obtain an estimate of the rate of STP of 3.5% and an SPC of 2.2. We also re-estimate the SDR using the SOC method and conclude that, even if analysts continue to use this method, they should use a considerably lower rate of about 5%.

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