NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Derivation of Discount Rates with an Augmented Measure of Income.

Nicholas Z. Muller

NBER Working Paper No. 22579
Issued in August 2016
NBER Program(s):Environment and Energy Economics

Most developed economies invest in public goods such as national defense, education, infrastructure, and the environment. Expenditures on public projects entail a diversion of funds away from investments in private capital. Discount rates used to evaluate such projects should reflect the rate of return on the current mix of investment opportunities. The present paper derives discount rates using an augmented measure of national income inclusive of non-market goods. The discount rate reflects three key factors: the productivity of private capital, the opportunity cost of direct expenditure on public projects, and the returns to public investment that accrete outside of the market boundary. The difference between this social rate and the market rate depends on the latter two factors. In the first empirical calculation of discount rates in this setting, the paper reports that, in the U.S. economy, the difference between augmented and market discount rates amounts to 1.24 percent from 1999 to 2002 and under 1 percent from 2002 to 2011.

download in pdf format
   (521 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22579

Users who downloaded this paper also downloaded* these:
Cravino and Levchenko w22498 Multinational Firms and International Business Cycle Transmission
Boudoukh, Brooks, Richardson, and Xu w22576 The Complexity of Liquidity: The Extraordinary Case of Sovereign Bonds
Fullerton and Rao w22580 The Lifecycle of the 47%
Cheung, Chinn, and Nong w22539 Estimating Currency Misalignment Using the Penn Effect: It’s Not as Simple As It Looks
Friedman w0917 Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us