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Mark A. Moore - One of the best experts on this subject based on the ideXlab platform.

  • More appropriate Discounting: the Rate of Social time preference and the value of the Social Discount Rate
    Journal of Benefit-Cost Analysis, 2013
    Co-Authors: Mark A. Moore, Anthony E. Boardman, Aidan R. Vining
    Abstract:

    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%.

  • The choice of the Social Discount Rate and the opportunity cost of public funds
    Journal of Benefit-Cost Analysis, 2013
    Co-Authors: Mark A. Moore, Anthony E. Boardman, Aidan R. Vining
    Abstract:

    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.

  • The Social Discount Rate for Canada Based on Future Growth in Consumption
    Canadian Public Policy, 2010
    Co-Authors: Anthony E. Boardman, Mark A. Moore, Aidan R. Vining
    Abstract:

    Recent interim guidelines of the Treasury Board Secretariat (2007) recommend a Social Discount Rate (SDR) of 8 percent. This paper argues that this value is based on an inappropriate methodology and is too high. Using a consumption Rate of interest and drawing on a growth model, we suggest that if a project is intragenerational (less than 50 years) and there is no crowding out of private investment, then analysts should use an SDR of 3.5 percent. Impacts on investment should first be converted to consumption equivalents using a shadow price of capital of 1.26. If the project has intergenerational impacts (beyond 50 years), such as those affecting climate change, we recommend a schedule of time-declining SDRs.

  • just give me a number practical values for the Social Discount Rate
    Journal of Policy Analysis and Management, 2004
    Co-Authors: Mark A. Moore, Anthony E. Boardman, Aidan R. Vining, David L Weimer, David H Greenberg
    Abstract:

    A major reason the quality of cost-benefit analysis (CBA) varies widely is inconsistent use of the Social Discount Rate (SDR). This article offers guidance about the choice of the SDR. Namely, we recommend the following procedures: If the project is intragenerational (does not have effects beyond 50 years) and there is no crowding out of private investment, then Discount all flows at 3.5 percents if the project is intragenerational and there is some crowding out of investment, then weight investment flows by the shadow price of capital of 1.1 and then Discount at 3.5 percents if the project is intergenerational and there is no crowding out of investment, then use a time-declining scale of Discount Ratess if the project is intergenerational and investment is crowded out, then convert investment flows during the first 50 years to consumption equivalents using a shadow price of 1.1, and then Discount all of these flows at 3.5 percent, and Discount all flows after the 50th year using time-declining Rates. We then compare current Discounting practices of U.S. federal agencies with our estimates. Consistent use of the recommended Rates would eliminate arbitrary choices of Discount Rates and would lead to better public sector decision-making. © 2004 by the Association for Public Policy Analysis and Management.

  • Cost-Benefit Analysis and Public Policy - “Just give me a number!” Practical values for the Social Discount Rate
    Journal of Policy Analysis and Management, 2004
    Co-Authors: Mark A. Moore, Anthony E. Boardman, Aidan R. Vining, David L Weimer, David H Greenberg
    Abstract:

    A major reason the quality of cost-benefit analysis (CBA) varies widely is inconsistent use of the Social Discount Rate (SDR). This article offers guidance about the choice of the SDR. Namely, we recommend the following procedures: If the project is intragenerational (does not have effects beyond 50 years) and there is no crowding out of private investment, then Discount all flows at 3.5 percents if the project is intragenerational and there is some crowding out of investment, then weight investment flows by the shadow price of capital of 1.1 and then Discount at 3.5 percents if the project is intergenerational and there is no crowding out of investment, then use a time-declining scale of Discount Ratess if the project is intergenerational and investment is crowded out, then convert investment flows during the first 50 years to consumption equivalents using a shadow price of 1.1, and then Discount all of these flows at 3.5 percent, and Discount all flows after the 50th year using time-declining Rates. We then compare current Discounting practices of U.S. federal agencies with our estimates. Consistent use of the recommended Rates would eliminate arbitrary choices of Discount Rates and would lead to better public sector decision-making. © 2004 by the Association for Public Policy Analysis and Management.

María José Muñoz Torrecillas - One of the best experts on this subject based on the ideXlab platform.

  • building a Social Discount Rate to be applied in us afforestation project appraisal
    Forests, 2019
    Co-Authors: María José Muñoz Torrecillas, Julian Roche, Salvador Cruz Rambaud
    Abstract:

    This paper is focused on searching for the suitable Discount Rate to be applied to the valuation of a project related to forests in the USA, e.g., a recreational area inside a national park. To do this, we propose a new model based on hazard Rate concepts, i.e., based on the risk that waiting time implies. More specifically, we derive the Discount function whose instantaneous Discount Rate is the hazard Rate of the system supporting the investment. We determine the Rate of failure corresponding to different partition criteria of the whole system; in our case, we can use the information on forest fires caused in different ways, in different states or in different types of forest surfaces. After showing independence between the forest fires by states and causes, we derive a specific Discount function for each cause which can be applied to every state or set of states which agree to fight against a concrete cause of forest fire. Additionally, we obtain a unique Discount function by weighting the partial Discount functions by type of forest surfaces. Our results are in line with the recommendations from several authors about using decreasing Discount Rates for projects with very long-term impacts.

  • a multifactor approach to the Social Discount Rate an application to the spanish forest system
    Journal of Sustainable Forestry, 2017
    Co-Authors: María José Muñoz Torrecillas, Salvador Cruz Rambaud
    Abstract:

    This paper focuses on the calculation of the Social Discount Rate to be used in the valuation of long-term investment projects and, more specifically, in the appraisal of public and environmental p...

  • A multifactor approach to the Social Discount Rate: An application to the Spanish forest system
    Journal of Sustainable Forestry, 2017
    Co-Authors: María José Muñoz Torrecillas, Salvador Cruz Rambaud
    Abstract:

    ABSTRACTThis paper focuses on the calculation of the Social Discount Rate to be used in the valuation of long-term investment projects and, more specifically, in the appraisal of public and environmental projects. The key idea is that the instantaneous Discount Rate of the Discount function used for valuation must be equal to the hazard Rate of the public good or the mortality Rate of the population affected by the project. Previously, this approach has been applied by the authors to a system in which failure depends on a single component, but in this paper, we are going to consider the failure of several independent components which, in combination, give rise to a multivariate hazard Rate. In our empirical application, the entire forested area of Spain will be the system, and the forests of the seventeen autonomous communities will be considered the components of the system; the forest fire will be the failure, measured by the number of hectares devastated by fire in each region. Finally, once the failur...

  • A multifactor approach to the Social Discount Rate
    2011
    Co-Authors: Salvador Cruz Rambaud, María José Muñoz Torrecillas
    Abstract:

    This work focuses on the appraisal of public and environmental projects and, more specifically, on the calculation of the Social Discount Rate (SDR) for this kind of very long-term investment projects. As a rule, we can state that the instantaneous Discount Rate must be equal to the hazard Rate of the public good or to the mortality Rate of the population that the project is intended to. The hazard can be due to technical failures of the system, but, in this paper, we are going to consider different independent variables that can cause the hazard. That is, we are going to consider a multivariate hazard Rate. In our empirical application, the Spanish forest surface will be the system and the forest fire will be the fail that can be caused by several factors. The aim of this work is to integRate the different variables that produce the fail in the calculation of the SDR from a multivariate hazard Rate approach. Key-words: Social Discount Rate, multivariate hazard Rate, forest fires, public and environmental projects. 1 The authors acknowledge financial support by AECID (Agencia Espanola de Cooperacion Internacional para el Desarrollo), Project A/031368/10.

  • Social Discount Rate: a revision
    2006
    Co-Authors: Salvador Cruz Rambaud, María José Muñoz Torrecillas
    Abstract:

    This paper is focused in the problem of choosing a Social Discount Rate (SDR) for public investment projects. The standard use of the cost-benefit analysis based on the exponential Discounting and a constant Discount Rate has been criticized, when used to appraise long-term public projects. The critiques are motivated for the scarce importance this model attaches to the consequences of a certain project in the distant future and so to future generations. For this Feason, several authors have approached the Discounting process in a different way, taking into account variable Discount Rates and new Discounting functions. In this paper, we have tried to include al1 the relevant contributions on the searching of an appropriate Social Discount Rate, offering an overview of the research in the area.

Kofi Kissi Dompere - One of the best experts on this subject based on the ideXlab platform.

  • the theory of optimal Social Discount Rate
    2004
    Co-Authors: Kofi Kissi Dompere
    Abstract:

    In chapter 3 and 4 in companion Volume devoted to identification and measurement theory [931b] we presented theoretical structures of cost and benefit accounting in benefit-cost analysis. The two chapters were preceded by Chapter 2 of the theory of computable cost-benefit identification matrices. Computations of static and flows of benefits and costs of a project or a decision that alters the Social welfare state of an economy at the reference pint of decision were presented. Discussions were advanced to show how to extend the theory of computable cost and benefit matrices to decisions of engineering and mechanical systems. To make cross-sectional aggregation of heterogeneous real cost and benefit characteristics possible the theory of optimal prices was presented in Chapter I of this Volume. Given the time dimension of the flows of costs and benefits in the lifetime of Social decisions and projects, there arises an important need to connect the future values to the present values if these values are differentially preferred by individual members as well as the community as we travel through time. Connecting the future values to those of the present is the Discounting process that is done through logical assignments of converting weights at each point of time. Such a weighting process allows us to develop present-value equivalences of future values leading to weighted aggregates of costs and benefits or net cost-benefit for decision making in the present context.

  • A fuzzy-decision theory of optimal Social Discount Rate: collective-choice-theoretic
    Fuzzy Sets and Systems, 1993
    Co-Authors: Kofi Kissi Dompere
    Abstract:

    Abstract In this essay, we present a fuzzy-decision theory of the optimal Social Discount Rate. By combining methods of fuzzy logic, consensus, combination of expert judgments and fuzzy aggregation, algorithms are developed for computing optimal Social Discount Rates from individual and collective time preferences. The results are examined against the computation of Social Discount Rate on individual preferences as measured by utilities. An example is provided to illustRate the applicational mechanism of the theory. The essay is concluded with an appendix which is devoted to examining the properties of the required time set for the construction of the Social Discount.

Salvador Cruz Rambaud - One of the best experts on this subject based on the ideXlab platform.

  • building a Social Discount Rate to be applied in us afforestation project appraisal
    Forests, 2019
    Co-Authors: María José Muñoz Torrecillas, Julian Roche, Salvador Cruz Rambaud
    Abstract:

    This paper is focused on searching for the suitable Discount Rate to be applied to the valuation of a project related to forests in the USA, e.g., a recreational area inside a national park. To do this, we propose a new model based on hazard Rate concepts, i.e., based on the risk that waiting time implies. More specifically, we derive the Discount function whose instantaneous Discount Rate is the hazard Rate of the system supporting the investment. We determine the Rate of failure corresponding to different partition criteria of the whole system; in our case, we can use the information on forest fires caused in different ways, in different states or in different types of forest surfaces. After showing independence between the forest fires by states and causes, we derive a specific Discount function for each cause which can be applied to every state or set of states which agree to fight against a concrete cause of forest fire. Additionally, we obtain a unique Discount function by weighting the partial Discount functions by type of forest surfaces. Our results are in line with the recommendations from several authors about using decreasing Discount Rates for projects with very long-term impacts.

  • a multifactor approach to the Social Discount Rate an application to the spanish forest system
    Journal of Sustainable Forestry, 2017
    Co-Authors: María José Muñoz Torrecillas, Salvador Cruz Rambaud
    Abstract:

    This paper focuses on the calculation of the Social Discount Rate to be used in the valuation of long-term investment projects and, more specifically, in the appraisal of public and environmental p...

  • A multifactor approach to the Social Discount Rate: An application to the Spanish forest system
    Journal of Sustainable Forestry, 2017
    Co-Authors: María José Muñoz Torrecillas, Salvador Cruz Rambaud
    Abstract:

    ABSTRACTThis paper focuses on the calculation of the Social Discount Rate to be used in the valuation of long-term investment projects and, more specifically, in the appraisal of public and environmental projects. The key idea is that the instantaneous Discount Rate of the Discount function used for valuation must be equal to the hazard Rate of the public good or the mortality Rate of the population affected by the project. Previously, this approach has been applied by the authors to a system in which failure depends on a single component, but in this paper, we are going to consider the failure of several independent components which, in combination, give rise to a multivariate hazard Rate. In our empirical application, the entire forested area of Spain will be the system, and the forests of the seventeen autonomous communities will be considered the components of the system; the forest fire will be the failure, measured by the number of hectares devastated by fire in each region. Finally, once the failur...

  • A multifactor approach to the Social Discount Rate
    2011
    Co-Authors: Salvador Cruz Rambaud, María José Muñoz Torrecillas
    Abstract:

    This work focuses on the appraisal of public and environmental projects and, more specifically, on the calculation of the Social Discount Rate (SDR) for this kind of very long-term investment projects. As a rule, we can state that the instantaneous Discount Rate must be equal to the hazard Rate of the public good or to the mortality Rate of the population that the project is intended to. The hazard can be due to technical failures of the system, but, in this paper, we are going to consider different independent variables that can cause the hazard. That is, we are going to consider a multivariate hazard Rate. In our empirical application, the Spanish forest surface will be the system and the forest fire will be the fail that can be caused by several factors. The aim of this work is to integRate the different variables that produce the fail in the calculation of the SDR from a multivariate hazard Rate approach. Key-words: Social Discount Rate, multivariate hazard Rate, forest fires, public and environmental projects. 1 The authors acknowledge financial support by AECID (Agencia Espanola de Cooperacion Internacional para el Desarrollo), Project A/031368/10.

  • Social Discount Rate: a revision
    2006
    Co-Authors: Salvador Cruz Rambaud, María José Muñoz Torrecillas
    Abstract:

    This paper is focused in the problem of choosing a Social Discount Rate (SDR) for public investment projects. The standard use of the cost-benefit analysis based on the exponential Discounting and a constant Discount Rate has been criticized, when used to appraise long-term public projects. The critiques are motivated for the scarce importance this model attaches to the consequences of a certain project in the distant future and so to future generations. For this Feason, several authors have approached the Discounting process in a different way, taking into account variable Discount Rates and new Discounting functions. In this paper, we have tried to include al1 the relevant contributions on the searching of an appropriate Social Discount Rate, offering an overview of the research in the area.

Aidan R. Vining - One of the best experts on this subject based on the ideXlab platform.

  • More appropriate Discounting: the Rate of Social time preference and the value of the Social Discount Rate
    Journal of Benefit-Cost Analysis, 2013
    Co-Authors: Mark A. Moore, Anthony E. Boardman, Aidan R. Vining
    Abstract:

    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%.

  • The choice of the Social Discount Rate and the opportunity cost of public funds
    Journal of Benefit-Cost Analysis, 2013
    Co-Authors: Mark A. Moore, Anthony E. Boardman, Aidan R. Vining
    Abstract:

    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.

  • The Social Discount Rate for Canada Based on Future Growth in Consumption
    Canadian Public Policy, 2010
    Co-Authors: Anthony E. Boardman, Mark A. Moore, Aidan R. Vining
    Abstract:

    Recent interim guidelines of the Treasury Board Secretariat (2007) recommend a Social Discount Rate (SDR) of 8 percent. This paper argues that this value is based on an inappropriate methodology and is too high. Using a consumption Rate of interest and drawing on a growth model, we suggest that if a project is intragenerational (less than 50 years) and there is no crowding out of private investment, then analysts should use an SDR of 3.5 percent. Impacts on investment should first be converted to consumption equivalents using a shadow price of capital of 1.26. If the project has intergenerational impacts (beyond 50 years), such as those affecting climate change, we recommend a schedule of time-declining SDRs.

  • just give me a number practical values for the Social Discount Rate
    Journal of Policy Analysis and Management, 2004
    Co-Authors: Mark A. Moore, Anthony E. Boardman, Aidan R. Vining, David L Weimer, David H Greenberg
    Abstract:

    A major reason the quality of cost-benefit analysis (CBA) varies widely is inconsistent use of the Social Discount Rate (SDR). This article offers guidance about the choice of the SDR. Namely, we recommend the following procedures: If the project is intragenerational (does not have effects beyond 50 years) and there is no crowding out of private investment, then Discount all flows at 3.5 percents if the project is intragenerational and there is some crowding out of investment, then weight investment flows by the shadow price of capital of 1.1 and then Discount at 3.5 percents if the project is intergenerational and there is no crowding out of investment, then use a time-declining scale of Discount Ratess if the project is intergenerational and investment is crowded out, then convert investment flows during the first 50 years to consumption equivalents using a shadow price of 1.1, and then Discount all of these flows at 3.5 percent, and Discount all flows after the 50th year using time-declining Rates. We then compare current Discounting practices of U.S. federal agencies with our estimates. Consistent use of the recommended Rates would eliminate arbitrary choices of Discount Rates and would lead to better public sector decision-making. © 2004 by the Association for Public Policy Analysis and Management.

  • Cost-Benefit Analysis and Public Policy - “Just give me a number!” Practical values for the Social Discount Rate
    Journal of Policy Analysis and Management, 2004
    Co-Authors: Mark A. Moore, Anthony E. Boardman, Aidan R. Vining, David L Weimer, David H Greenberg
    Abstract:

    A major reason the quality of cost-benefit analysis (CBA) varies widely is inconsistent use of the Social Discount Rate (SDR). This article offers guidance about the choice of the SDR. Namely, we recommend the following procedures: If the project is intragenerational (does not have effects beyond 50 years) and there is no crowding out of private investment, then Discount all flows at 3.5 percents if the project is intragenerational and there is some crowding out of investment, then weight investment flows by the shadow price of capital of 1.1 and then Discount at 3.5 percents if the project is intergenerational and there is no crowding out of investment, then use a time-declining scale of Discount Ratess if the project is intergenerational and investment is crowded out, then convert investment flows during the first 50 years to consumption equivalents using a shadow price of 1.1, and then Discount all of these flows at 3.5 percent, and Discount all flows after the 50th year using time-declining Rates. We then compare current Discounting practices of U.S. federal agencies with our estimates. Consistent use of the recommended Rates would eliminate arbitrary choices of Discount Rates and would lead to better public sector decision-making. © 2004 by the Association for Public Policy Analysis and Management.