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American Economic Review Vol. 104 No. 5 2014

Declining Discount Rates

Maureen Cropper1; Mark Freeman2; Ben Groom3; William A. Pizer4

1 University of Maryland, 3114 Tydings Hall, College Park, MD 20742 and Resources for the Future (e-mail: ) · 2 Loughborough University, Leicestershire LE11 3TU, United Kingdom (e-mail: ) · 3 London School of Economics, London WC2A 2AE, United Kingdom (e-mail: ) · 4 Duke University, Durham, NC 27708 ()

open access

Abstract

We ask whether the US government should replace its current discounting practices with a declining discount rate schedule, as the United Kingdom and France have done, or continue to discount the future at a constant exponential rate. We present the theoretical basis for a declining discount rate (DDR) schedule, but focus on how, in practice, a DDR could be estimated for use by policy analysts. We discuss the empirical approaches in the literature and review how the United Kingdom and France estimated their DDR schedules. We conclude with advice on how the United States might proceed to consider modifying its current discounting practices.

DOI
10.1257/aer.104.5.538
Volume
104
Issue
5
Pages
538-543
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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