On the Social Rate of Discount: Comment

  • Ramsey D
ISSN: 0033-5533
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Abstract

The article focuses on the social rate of discount. Economists understand thoroughly just what this variable should measure, The opportunity cost of postponement of receipt of any benefit yielded by a public investment. They agree also on the components that should be considered in making up this figure. Primarily the welfare foregone by not having these benefits available for immediate consumption or reinvestment and a premium corresponding to the risk incurred in undertaking government projects. Above all, economists are quite generally in accord on the view that a very serious misallocation of resources can result from the use of an incorrect estimate of the value of this variable in a cost-benefit calculation. Some calculations by governmental agencies and others have even employed discount rates as low as three per cent or have even discounted at a zero rate. Since the choice of investment projects can be so sensitive to the magnitude of this variable, little help is provided to the decision maker who is confronted by such an enormous range of estimates.

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APA

Ramsey, D. D. (1969). On the Social Rate of Discount: Comment. American Economic Review, 59(5), 919–924. Retrieved from http://www.lib.lsu.edu/apps/onoffcampus.php?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4506888&site=ehost-live&scope=site

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