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Social Discounting Under Uncertainty: A cross-country comparison

Cameron Hepburny, Phoebe Koundouri, Ekaterini Panopoulou and Theologos Pantelidis

  • IIIS Discussion Paper No. 177
    ducted with a declining discount rate. For instance, Newell and Pizer [23]
    show that the U.S. certainty-equivalent discount rate declines through
    time, using a simple autoregressive model of U.S. interest rates. This
    paper extends that line of research, estimating both autoregressive and
    regime-switching models of real interest rates to determine certainty-
    equivalent discount rates in Australia, Canada, Germany and the United
    Kingdom. It is found that the regime-switching model is a better model
    of past interest rate behavior for all four countries. This model tends
    to produce a more rapid decline in certainty-equivalent discount rates.
    The paper provides applications to the economics of climate change and
    nuclear power.

    JEL Classification Numbers: Q48, C13, C53, E43.
    Keywords: discounting, uncertainty, regime-switching models, climate change policy, nuclear power

Last updated 28 August 2014 by IIIS (Email).