The theory of long-term socially efficient discount rates : a report on fundamental issues concerning long-term discounting

Abstract

This thesis discusses the theory of long-term discount rates for evaluation of longterm public projects. While there are many public projects with a distant time horizon, the threat of global climate change has vastly stimulated economic research and debate on the socially ecient discount rate for such applications. Due to absence of ecient interest rate markets with distant maturities, the work in progress is heavily relying on the sophistication of economic theory. I present the essence of the debate following the Stern review centered around the so-called Ramsey-rule, by which I depart from to investigate the recent development on declining discount rates that incorporates risk and uncertainty of the future. I hope to clarify some of the basis upon which arguments are held in the literature.