Social discounting

Ben Groom has facilitated several workshops with HM Treasury on the topic of social discounting. These workshops served the purpose of informing and updating the Treasury with regard to the latest academic literature on social discounting and advocating for changes or the status quo based on the evidence.

Policy context

The social discount rate (SDR) is a crucial component of the UK government’s approach to project and policy appraisal. SDRs enable us to place a present value on the future costs and benefits of projects and policies that are intended to provide a societal benefit: they specify the degree to which we ‘discount the future’. Identifying the ‘correct’ SDR is one of the most important aspects of cost−benefit analysis, as changing the discount rate by even a fraction of a percentage point can affect whether a policy is approved.

The Treasury Guidelines on Cost Benefit Analysis in its Green Book, takes as the Social Discount Rate (SDR) an estimate of how society values consumption at different points in time.

 

What we did

Ben Groom has been working with HM Treasury for 20 years on the topic of Social Discounting since contributing  to the 2003 update which led to the pioneering use of  declining discount rates public policy appraisal. This change in guidance was based on this ‘A social time preference rate for use in long-term discounting’ report in 2022, which led to a well cited paper on ‘Declining Discount Rates: The Long and the Short of it’ in 2005.

Further workshops were held in 2013 and 2018 to update the HM Treasury on the latest theoretical and empirical research on social discounting in the aftermath of the Stern Review on the Economics of Climate Change. These workshops led to a ‘Social Discount Rates for Cost-Benefit Analysis’ report to the Treasury in 2018, and this Environmental Discount Rate Review Conclusion report in 2021.

More information can be found in this 2020 article by Oxera, ‘A formula for success: reviewing the social discount rate’.

 

KEY REPORT: Social Discount Rates for Cost-Benefit Analysis

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KEY PAPER: The Future, Now: A Review of Social Discounting

Annual Reviews of Resource Economics (2022)

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KEY PAPER: Declining Discount Rates: The Long and the Short of it

Environmental and Resource Economics (2005)

View paper