A Varying Social Rate of Discount: Review of Arguments

The assessment of the social value of multiperiod effects (costs and benefits) of public policy decisions is usually based on the net present value criterion. The use of this criterion is based on two major assumptions: (a) the possibility of expressing all relevant impacts of a decision in a common cardinal (usually monetary) denominator; (b) the existence of an appropriate social rate of discount which transforms all future flows into present values. Clearly, these two assumptions are not entirely independent: if no monetary cardinal metric can be specified for the effects of a decision on a plan or project, it becomes problematic to use a conventional social rate of discount; besides, various authors have argued that in case of intangible effects which cannot be valued monetarily, it may be plausible to adjust the social rate of discount.