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Social discounting under uncertainty: a cross-country comparison

By Cameron Hepburn, Phoebe Koundouri, Ekaterini Panopoulou and Theologos Pantelidis

Abstract

Recent research suggests that social cost-benefit analysis should be conducted with a declining discount rate. For instance Newell and Pizer [Discounting the distant future: how much do uncertain rates increase valuations? J. Environ. Econ. Manage. 46 (2003) 52–71] show that the US certainty-equivalent discount rate declines through time, using a simple autoregressive model of US interest rates. This paper extends that line of research, estimating both autoregressive and regime-switching models of real interest rates to determine certainty-equivalent discount rates in Australia, Canada, Germany and the UK. It is found that the regime-switching model is a better model of past interest rate behavior for all four countries. This model tends to produce a more rapid decline in certainty-equivalent discount rates. The paper provides applications to the economics of climate change and nuclear power

Topics: HB Economic Theory
Publisher: Elsevier
Year: 2009
DOI identifier: 10.1016/j.jeem.2008.04.004
OAI identifier: oai:eprints.lse.ac.uk:32937
Provided by: LSE Research Online
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