Choosing the Social Discount Rate for Australia. (1st March 2018)

• Record Type: Journal Article
• Authors: Abelson, Peter; Dalton, Tim
• Is Part Of: Australian economic review. Volume 51:Number 1(2018:Mar.)
• Page Start: 52
• Page End: 67
• Publication Date: 2018-03-01
• Subjects: Economics -- Periodicals; Australia -- Economic conditions -- Periodicals; Australia -- Economic policy -- Periodicals; Australia -- Economic conditions -- 1945-; Économie politique -- Périodiques; Australie -- Conditions économiques -- Périodiques; Australie -- Politique économique -- Périodiques; Australie -- Conditions économiques -- 1945- -- Périodiques; 330.994005
• DOI: 10.1111/1467-8462.12254
• Languages: English
• ISSNs: 0004-9018

Abstract

Abstract: This article argues that in cost–benefit analysis government should adopt the opportunity cost of capital as represented by the alternative project rate of return as the social discount rate rather than the private or social time discount rate or a weighted cost of funds rate that reflects estimated proportions of investment and consumption foregone. The appropriate metric for the alternative project rate of return is average market return allowing for non‐diversifiable risk but not for diversifiable project risk. The article concludes that the appropriate social discount rate for Australia, for all sectors and states and territories, is approximately 6.5 per cent.