Social Discounting Under Uncertainty: A Cross-Country Comparison

33 Pages Posted: 19 Nov 2006

See all articles by Cameron J. Hepburn

Cameron J. Hepburn

London School of Economics, Grantham Research Institute

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies; University of Reading - Department of Economics

Ekaterini Panopoulou

Essex Business School

Theologos Pantelidis

University of Kent

Multiple version iconThere are 2 versions of this paper

Date Written: September 2006

Abstract

Recent research suggests that social cost-benefit analysis should be con ducted with a declining discount rate. For instance, Newell and Pizer [23] show that the U.S. certainty-equivalent discount rate declines through time, using a simple autoregressive model of U.S. interest rates. This paper extends that line of research, estimating both autoregressive and regime-switching models of real interest rates to determine certainty-equivalent discount rates in Australia, Canada, Germany and the United Kingdom. It is found that the regime-switching model is a better model of past interest rate behavior for all four countries. This model tends to produce a more rapid decline in certainty-equivalent discount rates. The paper provides applications to the economics of climate change and nuclear power.

Keywords: discounting, uncertainty, regime-switching models, climate change policy, nuclear power

JEL Classification: Q48, C13, C53, E43.

Suggested Citation

Hepburn, Cameron J. and Koundouri, Phoebe and Panopoulou, Ekaterini and Pantelidis, Theologos, Social Discounting Under Uncertainty: A Cross-Country Comparison (September 2006). IIIS Discussion Paper No. 177, Available at SSRN: https://ssrn.com/abstract=945145 or http://dx.doi.org/10.2139/ssrn.945145

Cameron J. Hepburn (Contact Author)

London School of Economics, Grantham Research Institute ( email )

Houghton Street
London, WC2A 2AE
Great Britain

HOME PAGE: http://www.cameronhepburn.com

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+0030 210 8203147 (Phone)
+0030 210 8214122 (Fax)

HOME PAGE: http://www.econ.ucl.ac.uk/downloads/koundouri/cv.pdf

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom
+44 - (0)118 - 9875123 (Phone)
+44 - (0)118 - 9750236 (Fax)

HOME PAGE: http://www.rdg.ac.uk/economics/koundouri.html

Ekaterini Panopoulou

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Theologos Pantelidis

University of Kent ( email )

Canterbury, Kent CT2 7PE
United Kingdom

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