Declining Discount Rates: Evidence from the UK

provided by Research Papers in Economics

Declining Discount Rates: Evidence from the UK

Ben Groom*     Phoebe Koundouri^     Ekaterini Panopoulou^

Theologos Pantelidis^§

January 31, 2005

Abstract

We estimate schedules of declining discount rates for cost benefit analysis in the UK. We highlight
the importance of model selection for this task and hence for the evaluation of long-term investments,
namely climate change prevention and nuclear build.

JEL classification: C13, C53, Q2, Q4

Keywords: long-run discounting, state-space models, regime-switching models, climate change policy,
nuclear build

Acknowledgments: We are grateful to Christian Gollier, Cameron Hepburn, Dimitrios Malliarop-
ulos, David Pearce and Nikitas Pittis for helpful comments and suggestions.

Panopoulou and Pantelidis thank the EU for financial support under the “PYTHAGORAS: Funding
of research groups in the University of Piraeus” through the Greek Ministry of National Education and
Religious Affairs.

‘Department of Economics, University College London, UK.

^Department of Economics, University of Reading, UK and Depatment of Economics, University College
London, UK.

^Department of Banking and Financial Management, University of Piraeus, Greece and Department of Eco-
nomics, National University of Ireland Maynooth. Correspondence to: Ekaterini Panopoulou, Department of
Economics, National University of Ireland Maynooth, Co.Kildare, Republic of Ireland. E-mail: apano@may.ie.
Tel: 00353 1 7083793. Fax: 00353 1 7083934.

^§ Department of Banking and Financial Management, University of Piraeus, Greece.

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