| Author/Presenter |
David Burgess (University of Western Ontario) |
| Title |
Removing Some Dissonance from the Social Discount Rate Debate |
| Abstract |
This paper reconciles three criteria for project evaluation that are prominent in the literature: the social opportunity cost of capital (SOC)criterion proposed by Harberger and Sandmo/Dreze, the shadow pricing algorithm proposed by Marglin,Feldstein,Bradford and Lind, and the "marginal cost of funds" (MCF)approach recently proposed by Liu. In an infinitely lived representative agent model these criteria are consistent with each other when properly implemented; they all correctly identify Pareto improving projects. In an overlapping generations model the SOC criterion and the MCF criterion correctly indentify Pareto improving projects, but the shadow pricing algorithm fails to meet this standard. |
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