The social discount rate in cost benefit analysis: the British experience and lessons to be learned
Application of the social discount rate to public sector projects is one of the most crucial parameters in cost benefit analysis. Because of its importance some countries have a formal discount rate and method of discounting policies. The United Kingdom was one of the earliest to adopt a policy on discounting which started in 1967 and it is still evolving. This paper looks at the evolution of the British discounting policy with a number of constructive critical remarks focussing on the magnitude of the current rate as well as the method of discounting. It concludes that present 3.5% figure is rather low and discounting by using the declining rate is almost totally ineffective to care for future generations as compared with an alternative modified discounting which treats all generations in the same manner
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