Lunchtime Seminar - Social Discount Rate
From: Friday September 20, 2019, 12:15 pm
To: Friday September 20, 2019, 1:30 pm
The choice of discount rate in cost benefit analysis has the potential to significantly affect project choice. Economic theory does not provide a definitive answer as to the correct rate to be applied in all circumstances. There are two key approaches to setting the discount rate – the social opportunity cost and the social rate of time preference – and each embodies certain assumptions. The first emphasises the opportunity cost of public investment, in assuming that all government investment could have alternatively been invested in the private sector to earn market returns. The latter focuses on society’s rate of time preference and declining marginal utility of income. This paper argues that as most government investment is focused on delivering public goods to improve society’s welfare, it is inherently different to private investment and more aligned with the assumptions underpinning the social rate of time preference discount rate. However, in cases where the government is directly competing with the private sector, a social opportunity cost of capital discount rate is more appropriate.
|William Gort is an Associate Director at Deloitte Access Economics who specialises in economic analysis and policy in the education sector, where he has experience working with key government clients across Australia. His experience includes analysing policy, regulation and funding arrangements from early childhood to tertiary education and beyond. In recent years he has published a number of papers and conference presentations relating to education policy in Australia, with a focus on funding model design and the measurement of outcomes.|
Dena Jacobs is a policy economist with experience from a range of domestic and international contexts. Dena is an Associate Director at Deloitte Access Economics where she works primarily for public sector clients on economic policy questions and investment decisions. Dena joined Deloitte from NSW Treasury where she worked on the State's capital spending program and associated policies, including the establishment of the Snowy Hydro legacy Fund, and the NSW Government Asset Management and Capital Planning Policies. Prior to that, Dena worked across a range of economic policy roles at the Bank of England and the RBA, including in the Office of the Bank of England's Chief Economist.
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65 Martin Place, SYDNEY NSW 2000