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Social Discounting and the Cost of Public Funds: A Practitioner’s Perspective

Published online by Cambridge University Press:  31 March 2020

Michael Spackman
Michael Spackman*
Affiliation:
Department of Geography and Environment, London School of Economics and Political Science, London WC2A 2AE, UK, e-mail: m.j.spackman@lse.ac.uk NERA Economic Consulting, Marble Arch House, 66 Seymour Street, London W1H 5BT, UK
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Abstract

Social discounting conventions vary widely. Some differences reflect institutional constraints, but many reflect differing assumptions about how a social discount rate should be derived and applied. The divide between advocates of social opportunity cost and social time preference (STP) frameworks seems unbridgeable. There is no consensus among STP advocates on whether the social cost of funding $1 of public spending is barely more than $1 of consumption or perhaps more than $2; or on whether the covariance of public service benefits with income merits a discount rate premium that is trivial or a few percentage points. The practicalities of government fund raising are sometimes overlooked. The issues are here reviewed in the light of the literature and of experience with developing and applying social discounting regimes and extended debates within government.

Keywords

cost–benefit analysisfinancial riskmicroeconomic behavioral economicsmicroeconomic policy formulationsocial discount rate.D04D90D61G32H43
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 11 , Issue 2 , Summer 2020 , pp. 244 - 271
Copyright
© Society for Benefit-Cost Analysis, 2020

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