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Journal of Benefit-Cost Analysis

Online
ISSN
2152-2812
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Appropriate Discounting for Benefit-Cost Analysis

David F Burgess1 / Richard O Zerbe2

1University of Western Ontario

2University of Washington, Seattle

Citation Information: Journal of Benefit-Cost Analysis. Volume 2, Issue 2, ISSN (Online) 2152-2812, DOI: https://doi.org/10.2202/2152-2812.1065, April 2011

Publication History

Published Online:
2011-04-25

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.

Keywords: discount rate

Citing Articles

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[1]
Tatiana Kossova and Maria Sheluntcova
International Journal of Project Management, 2016, Volume 34, Number 3, Page 403
[2]
Kerry Krutilla and John D. Graham
Journal of Policy Analysis and Management, 2012, Volume 31, Number 3, Page 501

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