Gollier, Christian, Zheng, Jiakun and Ploeg, Frederick van der (2022) The discounting premium puzzle: survey evidence from professional economists. TSE Working Paper, n. 22-1345, Toulouse

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We survey the attitude towards the risk-adjustment of efficient discount rates among the economics profession. Three-fourth of our respondents recommend adjusting discount rates to the risk profile of the project under scrutiny, in clear opposition to the standard practice of using a single discount rate in most public administrations around the world. For example, on average, respondents recommend using a larger discount rate for railway infrastructures than for hospitals and climate mitigation. We also observe that the degree of discounting discrimination between obviously different risk profiles remains rather limited in our sample. This generates a ”discounting premium puzzle”: economic experts want to penalize risky public projects much less than financial markets do for private investments. Finally, among experts supporting a single discount rate, there is no consensus about whether it should be based on the average cost of capital in the economy, the sovereign borrowing cost, or the Ramsey rule, yielding disagreement on its level.

Item Type: Monograph (Working Paper)
Language: English
Date: June 2022
Place of Publication: Toulouse
JEL Classification: D81 - Criteria for Decision-Making under Risk and Uncertainty
G11 - Portfolio Choice; Investment Decisions
Divisions: TSE-R (Toulouse)
Institution: Université de Toulouse 1
Site: UT1
Date Deposited: 01 Jul 2022 07:46
Last Modified: 29 Mar 2023 11:43
OAI Identifier: oai:tse-fr.eu:127051
URI: https://publications.ut-capitole.fr/id/eprint/45834
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