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Use of Discount Rates in the Estimation of the Costs of Inaction with Respect to Selected Environmental Concerns

This paper reviewed current discounting practice in the OECD. It found a wide variance in guidance across countries (which may or may not be justifiable by different economic conditions), and significant differences in guidance within countries. Furthermore, even when discounting guidance is specified, it is not always followed in practice.

A clear conclusion from this study is the allocation of public funds would be substantially improved if OECD countries provided departments with a consistent set of guidance on discounting. This guidance should provide for the analysis of long-term projects, programmes and policies, which are increasingly important, particularly with respect to environmental concerns. Finally, guidance should incorporate advances in theory of discounting under long-term uncertainty. A recipe for determining the appropriate rate of decline in the discount rate is included in this paper.


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