TY  - JOUR
AU  - Viscusi,W. Kip
TI  - Rational Discounting for Regulatory Analysis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12294
PY  - 2006
Y2  - June 2006
UR  - http://www.nber.org/papers/w12294
L1  - http://www.nber.org/papers/w12294.pdf
N1  - Author contact info:
W. Kip Viscusi
Vanderbilt Law School
131 21st Avenue South
Nashville, TN 37203-1181
Tel: 615/343-7715
E-Mail: kip.viscusi@vanderbilt.edu
M2  - featured in NBER digest on 2006-06-12
AB  - This article examines the economic basis for what is termed %u201Crational discounting,%u201D which entails full recognition of policy effects over time and exponential discounting at a riskless rate of return. Policies often cannot be ranked unambiguously in terms of their present or future orientation. Both failure to discount and preferential intergenerational discounting generate inconsistencies and economic anomalies. Office of Management and Budget discounting guidelines now stipulate more reasonable discount rates than earlier guidelines, but err in permitting open-ended preferential rates for intergenerational effects. The article presents a methodology for monetizing the value of statistical life for people of different ages and at different points in time. Review of regulatory analyses indicates increased consistency of discounting practices. However, examination of two policies with intergenerational effects, stratospheric ozone regulation and nuclear waste storage at Yucca Mountain, reveal failures to adopt a rational discounting approach. The influence of behavioral anomalies such as hyperbolic discounting may make full recognition of intertemporal effects in benefit-cost analysis more consequential than the use of preferential discount rates.
ER  -