The impacts of social discount rate in countries striving for industrialization

Abstract

The social discount rate (SDR) for infrastructure policies is applied in public projects' benefit/cost analysis and measures the rate at which a society is willing to pay for present consumption. The choice of the discount rate in such project evaluation may play a vital role in the relative weighting of cost and benefits. A high SDR will evaluate the benefits of certain projects at a lower present value. A low SDR will raise the present value of the project's economic benefits, and it will weigh the long-term environmental damages more heavily. The current paper has examined variations in social discount rate policies of various countries around the world. Developed countries have applied lower rates like 3-5% while developing countries apply 7.3-15%. Higher SDR numbers means intervention to future generation rights. Developing countries should review the appropriateness of their SDR levels according to changing domestic economic circumstances and international capital market conditions. Developed countries should give less-developed countries or developing countries a chance by transferring their technologies applied in abatement policies. The key that will open the door to a better future for our grandchildren is in the hand of developed communities.