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Properties of the Social Discount Rate in a Benthamite Framework with Heterogeneous Degrees of Impatience

School of Business, Clarkson University, Potsdam, New York 13699
Ceremade, Université Paris-Dauphine, F-75016 Paris, France
CNRS, UMR7088, F-75016 Paris, France, and DRM, Université Paris-Dauphine, F-75016 Paris, France
dnocetti{at}clarkson.edu
jouini{at}ceremade.dauphine.fr
clotilde.napp{at}dauphine.fr

This paper derives the properties of the discount rate that should be applied to a public-sector project when the affected population has heterogeneous degrees of impatience. We show that, for any distribution of discount rates, the social discount rate has the following properties: it decreases over time, it is lower than the average of the discount rates in the population, and it converges to the discount rate of the most patient individual in the economy. These properties hold for both constant and decreasing individual discount rates. Finally, we evaluate how changes in the distribution of individual discount rates affect the social discount rate.

Key Words: social discount rate; hyperbolic discounting; cost-benefit analysis
History: Received: July 6, 2007;