Elyès Jouini (Université Paris-Dauphine - CEREMADE)

The appropriate social discount rate to apply in public sector cost-benefit analysis is still a contentious issue; as underlined by Weitzman (2001, p.16) « there does not now exist, nor has ever existed, anything remotely resembling a consensus even among the experts on this subject ». We address the problem of a social planner who, as in Weitzman (2001), gathers data on experts discount rates and wants to infer the socially efficient discount rate. The certainty equivalent approach of Weitzman (2001), which consists in taking the unweighted average of the individual discount factors, is very fruitful but, as underlined by Gollier (2004), it lacks economic foundation. We adopt an equilibrium approach. We take into account the fact that the individual discount rates proposed by the experts reflect not only their utility discount rate (impatience rate) but also their beliefs about the future (growth of the economy). The expression for the equilibrium consensus discount rate differs from the one in Weitzman (2001). However, we show that the consensus discount rate is decreasing and converges to the lowest individual discount rate, as in Weitzman (1998, 2001). We calibrate our model to Weitzman (2001)’s data in order to propose socially efficient discount rates for each horizon.