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Journal of Economic Perspectives: Vol. 13 No. 4 (Fall 1999)

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Discounting Inside the Washington D.C. Beltway

Article Citation

Bazelon, Coleman, and Kent Smetters. 1999. "Discounting Inside the Washington D.C. Beltway." Journal of Economic Perspectives, 13(4): 213-228.

DOI: 10.1257/jep.13.4.213

Abstract

This article focuses on how the choice of discount rate can dramatically affect policy choices. These policies include whether to build a bridge, whether to privatize a Power Marketing Administration which sells electricity generated by government-owned facilities such as dams, how much money should be spent on early-childhood education, or options for reforming Social Security. The ongoing challenge is to discount future costs or benefits in a way that matches the project's level of riskiness. We begin by discussing the underlying issues in choosing an appropriate discount rate. We then discuss the variety of different discount rates that are actually used by various Washington policymakers and the biases they often generate.

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Authors

Bazelon, Coleman (Congressional Budget Office)
Smetters, Kent (U PA)

JEL Classifications

H43: Project Evaluation; Social Discount Rate

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