Optimal Discount Rates for Government ProjectsReport as inadecuate




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ISRN EconomicsVolume 2012 2012, Article ID 982093, 13 pages

Research ArticleOffice of Management and Budget, 725 17th Street NW #9025, Washington, WA 20503, USA

Received 19 April 2012; Accepted 16 May 2012

Academic Editors: E. L. Khalil, N. Vestergaard, and E. Yeldan

Copyright © 2012 Sangkyun Park. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Project selection based on the net present value can be optimal only if the discount rate is optimal. The optimal discount rate for a government project can be a risk-free rate, a comparable market rate market interest rate corresponding to the risk of cash flows to the government, or an adjusted market rate, depending on circumstances. This paper clarifies the conditions for each case. Provided that the optimal discount rate is the comparable market rate, it varies across intervention methods and changes with the subsidy rate.





Author: Sangkyun Park

Source: https://www.hindawi.com/



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