Appropriate time discounting in the public sector
A substantial literature of social discounting has now extended over more than 50 years, but practical approaches in developed economies and international bodies continue to vary widely. This is sometimes for institutional reasons, and sometimes because of persistent differences of analytical framing. In particular New Zealand and the federal governments of Australia and Canada firmly espouse rates based on private sector rates of return, while the European Commission and some European countries are now committed to a social time preference rate. This divide was prominent in the literature in the 1960s, but this paper revisits it, in the light of the subsequent decades of development in both theory and practical application. It concludes that, while the social time preference framing is essentially correct, especially for choice of technique decisions, in cost benefit analysis it too often overlooks the opportunity cost of public funding.