The economic determinants of risk-adjusted social discount rates

Cherbonnier, Frédéric and Gollier, Christian (2018) The economic determinants of risk-adjusted social discount rates. TSE Working Paper, n. 18-972, Toulouse

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Official URL: http://tse-fr.eu/pub/33135

Abstract

In theory, the measurement of the social value creation of any investment project requires estimating its consumption-based CAPM beta in order to compute its associated risk-adjusted discount rate. In order to assist evaluators to perform this task, we link this social beta to the underlying technical and economic environment of the project, such as the price and income elasticities of the supply and demand for the flow of goods and services generated by the investment. When the consumers’ willingness to pay and the variable production cost are Cobb-Douglas in aggregate income and quantity, the beta of the infrastructure has a flat term structure, and is positive for a normal good. But when the infrastructure has a limited capacity, the term structure of the beta is decreasing. Finally, as an illustration, we explain why an investment in a transfrontier trading infrastructure line should have a negative beta for the country that most often uses the line to export its cheaper good (such as electricity).

Item Type: Monograph (Working Paper)
Language: English
Date: October 2018
Place of Publication: Toulouse
Uncontrolled Keywords: Investment valuation, investment decision, CCAPM, risk-adjusted discount rate
JEL codes: D61 - Allocative Efficiency; Cost-Benefit Analysis
D92 - Intertemporal Firm Choice and Growth, Investment, or Financing
G11 - Portfolio Choice; Investment Decisions
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 12 Dec 2018 13:19
Last Modified: 28 Jun 2019 09:19
OAI ID: oai:tse-fr.eu:33135
URI: http://publications.ut-capitole.fr/id/eprint/28313

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