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

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Declining Discount Rates

Article Citation

Cropper, Maureen L., Mark C. Freeman, Ben Groom, and William A. Pizer. 2014. "Declining Discount Rates." American Economic Review, 104(5): 538-43.

DOI: 10.1257/aer.104.5.538

Abstract

We ask whether the US government should replace its current discounting practices with a declining discount rate schedule, as the United Kingdom and France have done, or continue to discount the future at a constant exponential rate. We present the theoretical basis for a declining discount rate (DDR) schedule, but focus on how, in practice, a DDR could be estimated for use by policy analysts. We discuss the empirical approaches in the literature and review how the United Kingdom and France estimated their DDR schedules. We conclude with advice on how the United States might proceed to consider modifying its current discounting practices.

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Authors

Cropper, Maureen L. (U MD and Resources for the Future, Washington, DC)
Freeman, Mark C. (Loughborough U)
Groom, Ben (London School of Economics and Political Science)
Pizer, William A. (Duke U)

JEL Classifications

D61: Allocative Efficiency; Cost-Benefit Analysis
H43: Project Evaluation; Social Discount Rate


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