Declining Discount Rates

Maureen Cropper, Mark C. Freeman, Ben Groom and William A. Pizer , American Economic Review Papers and Proceedings 104(5) , 538-543 , May 2014.

In this paper 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. To address the question, we briefly present the theoretical basis for a declining discount rate (DDR) schedule, and 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.

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