Social Discount Rate - University of Arizona

Social Discount Rate - University of Arizona

Social Discount Rate Consumers (Savers): Marginal Rate of Time Preference (MRTP) Producers (Investors): Marginal Rate of Return on Investment (MRRI) Under appropriate assumptions: Social Discount Rate (SDR) = MRTP = MRRI Equals market interest rate Consumers-Savers X1

x1 x0 I0 I1 X0 Producers-Investors X1

x1 x0 X0 X1 X0 Social Discount Rate

But in reality not a single interest rate for all savers and investors Factors affecting interest rates: Transactions costs Differences in risks Different time horizons Taxes Direct interventions in credit markets Transactions Costs Transactions Costs of Financial

Intermediation r Si Ss ri ri rs rs

Di I S K K Blended Rate Capital for project is combination of additional savings and reduced investment

in private sector (crowding out) K = S - I SDR = (S/K)*rs + (I/K)*ri Harberger: Empirical studies show savings rates insensitive to interest rates (S/ r 0), so S 0 SDR ri Ss = S I r ri

ri rs Di Ds I = K S = 0 K Small Investments

In the previous examples, we have examined the effects of large investments The amount of capital needed for the new investment is enough to affect market interest rates But many investments are not so big, will not affect interest rates For these scale of investments, the supply of savings may be considered to be perfectly elastic r

ri Si rs Ss Di S = K I = 0

K Small Investments K = S - I SDR = (S/K)*rs + (I/K)*ri

But now I = 0 SDR = rs So, for Small investments, the social opportunity cost of capital should be consumers marginal rate of time preference (MRTP), which is < MRRI

Recently Viewed Presentations

  • Teaching and Learning with Technology at UConn New

    Teaching and Learning with Technology at UConn New

    ~$55 for iClicker remote and REEF Polling App for 5 years. $26 for 6 months or $38 for one year or $75 for four years $0. Web-based. iClicker Cloud: Yes. iClicker Classic: No. Yes. Yes. HuskyCT Integration. Yes. Yes. No....
  • M&S WOMENSWEAR TIMELINE 1930s M&S started selling ready-to-wear

    M&S WOMENSWEAR TIMELINE 1930s M&S started selling ready-to-wear

    One of the first new labels was the Autograph range, designed to be fashionable and elegant. In 2001 we launched Per Una, inspired by Italian design. Three years later in 2004 Limited Collection arrived, aimed at younger customers who wanted...
  • Geographers and Religion

    Geographers and Religion

    Where did the world religions originate? To what extent does religion affect the relationships among various groups of people? Religion Religion distinguishes itself from other belief systems by its emphasis on the sacred and divine. Religions usually explain the relationship...
  • Capital Budgeting Decision Rules

    Capital Budgeting Decision Rules

    The recommended approach to any significant capital budgeting decision is NPV analysis. NPV = PV of the incremental benefits - PV of the incremental costs. When evaluating independent projects, take a project if and only if it has a positive...
  • Export Control Symposium - the exporter journey

    Export Control Symposium - the exporter journey

    UKTI DSO UKBF/HMRC/CPS How do I manage cashflow and offer competitive payment terms to win export contracts? UKTI DSO FCO ECO HMT Compliance with export control Ship Goods ITAR/EAR What other exporting approvals should I be seeking? US & other...
  • MLG 1001: Grammar Lectures - Paul Joyce&#x27;s German Websites

    MLG 1001: Grammar Lectures - Paul Joyce's German Websites

    These forms do not agree with the subject in person, tense & number. The main non-finite forms of a verb are: Infinitive machen (= to do) Present/past participle machend/gemacht Non-finite verbs are combined with finite verbs to form compound tenses...
  • Buying Guide For the Multiple Award Schedule 75 Enhanced SINs ...

    Buying Guide For the Multiple Award Schedule 75 Enhanced SINs ...

    Buying Guide For the Multiple Award Schedule 75 Enhanced SINs Office Supply 4th Generation Solution (OS4) ... Make green products available and easy to purchase. Conform with Agency business practices. ... By purchasing office supplies through OS4, customers are able...
  • The Effect of Casino Proximity on Lottery Sales: Zip Code ...

    The Effect of Casino Proximity on Lottery Sales: Zip Code ...

    The Effect of Casino Proximity on Lottery Sales: Zip Code-Level Evidence from Maryland. 10th European Conference on Gambling Studies and Policy Issues. Helsinki, Finland. 11 September 2014. Douglas M. Walker and Will E. Cummings