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The social discount rate is a reflection of a society's relative valuation on today's well-being versus well-being in the future. The appropriate selection of a social discount rate is crucial for cost–benefit analysis, and has important implications for resource allocations.
The social discount rate used by Stern, however, accounts for the possible increased wealth (consumption) of future generations through the product ηg (see the formula cited in the section on inherent discounting). Terry Barker of the Tyndall Centre Climate Change Research wrote a paper (Barker, 2008) supportive of the Review.
Discount rate may refer to: Social discount rate (of consumption), the rate at which the weight given to future consumption decreases in economic models;
The descriptive approach is based on what discount rates are observed in the behaviour of people making every day decisions (the private discount rate) (IPCC, 2007c:813). [224] In the prescriptive approach, a discount rate is chosen based on what is thought to be in the best interests of future generations (the social discount rate).
We draw on his results in discussing the limiting case, where the effective social discount rate goes to zero". In the interview that Cass gave to Macroeconomic Dynamics , he credits Koopmans with pointing him to Frank Ramsey's previous work, claiming to have been embarrassed not to have known of it, but says nothing to dispel the basic claim ...
Social discounting measures the rate at which one will tradeoff money between them and another person receiving it. For example, say you were offered $50, but if you forego it, your friend gets $60. What about your friend being offered $100. The point at which you forego the money is the social discount rate.
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When evaluating future benefits, economists typically use the concept of a social discount rate, which posits that the value of future benefits decreases exponentially with how far they are in time. In the standard Ramsey model used in economics, the social discount rate ρ {\displaystyle \rho } is given by: