Discounting according to output type Academic Article

abstract

• Federal discount rate policies advocate both a high rate representing the marginal productivity of capital and a low rate representing the government borrowing rate. These differential discount rate policies could be inconsistent and biased in favor of projects on which the lower discount rate is applied. This paper shows that the coexistence of different discount rates may be appropriate, depending on the type of project output. When a project's outputs are perfect substitutes for private consumption, both its costs and benefits should be discounted using the marginal productivity of capital. However, if the project's outputs are separable in the utility function, the benefits should be discounted using the net (of tax) rate of return.

authors

• Saving, Thomas

published proceedings

• SOUTHERN ECONOMIC JOURNAL

author list (cited authors)

• Liu, L. Q., Rettenmaier, A. J., & Saving, T. R.

citation count

• 3

complete list of authors

• Liu, LQ||Rettenmaier, AJ||Saving, TR

publication date

• January 2005

publisher

• JSTOR  Publisher

published in

• SOUTHERN ECONOMIC JOURNAL  Journal

keywords

• D61
• H43

Digital Object Identifier (DOI)

• 10.2307/20062103

start page

• 213

end page

• 223

volume

• 72

issue

• 1

URL

• http://dx.doi.org/10.2307/20062103