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Comment on Burgess and Zerbe’s “Appropriate Discounting for Benefit-Cost Analysis”

Published online by Cambridge University Press:  27 May 2015

Szabolcs Szekeres
Szabolcs Szekeres*
Affiliation:
IID Kft., Budapest
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Abstract

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This is a comment on a paper by David F. Burgess and Richard O. Zerbe. It derives a different set of conclusions than the cited authors do from the customary premises underlying benefit-cost analysis. It concludes that capital should be shadow priced, and that the appropriate discount rate to use in benefit-cost analysis is the interest rate of the capital market to which the public sector has access. It proposes that a plausible source of the great divergence in approaches to discounting stems from different answers being given to the question of whether present day consumption has a future consumption opportunity cost.

Keywords

discount rateBenefit-Cost Analysisshadow price of capital
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 2 , Issue 3 , 25 August 2011 , pp. 1 - 11
Copyright
Copyright © Society for Benefit-Cost Analysis 2011

References

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Burgess, David F. and Zerbe, Richard O. (2011) “Appropriate Discounting for Benefit-Cost Analysis,” Journal of Benefit-Cost Analysis: Vol. 2: Iss. 2, Article 2.CrossRefGoogle Scholar
Drèze, Jean and Stern, Nicholas. (1990): Policy Reform, Shadow Prices, and Market Prices. Journal of Public Economics 42, 1990: 1-45.CrossRefGoogle Scholar
Szekeres, Szabolcs. (2011) “Discounting in Cost-Benefit Analysis.” Society and Economy in Central and Eastern Europe, 33: 2, pp. 361–385.Google Scholar