American Economic Review: Vol. 104 No. 5 (May 2014)

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On Not Revisiting Official Discount Rates: Institutional Inertia and the Social Cost of Carbon

Article Citation

Sunstein, Cass R. 2014. "On Not Revisiting Official Discount Rates: Institutional Inertia and the Social Cost of Carbon." American Economic Review, 104(5): 547-51.

DOI: 10.1257/aer.104.5.547

Abstract

Within the federal government, official decisions are a product of both substantive judgments and institutional constraints. With respect to discounting, current practice is governed by OMB Circular A-4 and the 2010 and 2013 technical support documents of the Interagency Working Group on the Social Cost of Carbon. Reconsideration of existing judgments must be subjected to a demanding process of internal review (and potentially to external review as well). Institutional constraints, including the need to obtain consensus, can impose obstacles to efforts to rethink existing practices, especially in an area like discounting, which is at once technical and highly controversial. Both decisions costs and error costs must be considered.

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Authors

Sunstein, Cass R. (Harvard U)

JEL Classifications

H43: Project Evaluation; Social Discount Rate
Q51: Valuation of Environmental Effects
Q54: Climate; Natural Disasters; Global Warming
Q58: Environmental Economics: Government Policy


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