Valuing the Future: The Social Discount Rate in Cost-Benefit Analysis
192 Pages Posted: 11 May 2010
Date Written: April 22, 2010
In August 2007, the Office of Best Practice Regulation (then part of the Productivity Commission) published its Best Practice Regulation Handbook, containing guidelines including use of a social discount rate of 7 percent real, with sensitivity testing over the range of 3 to 11 per cent (OBPR 2007, pp 129-132).
This Visiting Researcher Paper was initiated, as foreshadowed in the Handbook, to examine further the evidence on the parameters influencing the choice of discount rate. It was prepared by Dr Mark Harrison when a visiting researcher at the Commission. The paper reviews conflicting views on the issues influencing discount rate selection, and examines recent evidence of possible market benchmarks for discount rate derivation.
Keywords: financial analysis, economic analysis
JEL Classification: D9, H4
Suggested Citation: Suggested Citation