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Calculating the Social Opportunity Cost Discount Rate

Published online by Cambridge University Press:  19 January 2015

David F. Burgess  and
Richard O. Zerbe
David F. Burgess
Affiliation:
University of Western Ontario
Richard O. Zerbe
Affiliation:
University of Washington, Seattle
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Abstract

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Two comments in this issue of the Journal address our recent article in Volume 2, Issue 2. The fundamental issue with both comments is that they confuse the financial rate of return with the opportunity cost rate of return and therefore advocate for an inappropriate basis on which to calculate the government discount rate. That is, both comments confuse the financial cost of funds, or the borrowing rate, with the economic opportunity cost of funds. We hope that this exchange advances the subject by reducing confusion.

Keywords

discount rate
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 2 , Issue 3 , 25 August 2011 , pp. 1 - 10
Copyright
Copyright © Society for Benefit-Cost Analysis 2011

References

Summers, L. and Zeckhauser, R.. 2008. “Policymaking for Posterity.” Journal of Risk and Uncertainty. 37(2): 115-140.CrossRefGoogle Scholar
Zerbe, R.O., and Dively, D.. 1994. Benefit-cost Analysis in Theory and Practice. New York, NY: HarperCollins College Publishers.Google Scholar
Zerbe, R.O., Davis, T.B., Garland, N.S., and Scott, T.S.. Towards Principles and Standards in the Use of Benefit-Cost Analysis: A Summary of Work, and a Starting Place. MacArthur Foundation Power of Measuring Social Benefits Initiative. Seattle, WA: Benefit-Cost Analysis Center, University of Washington.Google Scholar