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Should CBA use descriptive or prescriptive discount rates? It should use both!
Principal Investigator(s): View help for Principal Investigator(s) Szabolcs Szekeres, IID Kft.
Version: View help for Version V1
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application/vnd.ms-excel.sheet.macroenabled.12 | 189.3 KB | 02/10/2021 01:45:AM |
Project Citation:
Szekeres, Szabolcs. Should CBA use descriptive or prescriptive discount rates? It should use both! Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2021-02-10. https://doi.org/10.3886/E132122V1
Project Description
Summary:
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This is an agent based financial market model created in Excel that provides experimental data and calculation capabilities for the paper entitled "Should CBA use descriptive or prescriptive discount rates? It should use both!," the abstract of which is as follows:
Discounting project net flows that exclude financing costs with prescriptive rates fails to reflect costs of capital; discounting them with descriptive rates fails to reflect intertemporal preferences. A hybrid discounting method is proposed whereby descriptive rates are used to forecast costs of capital and prescriptive rates are used to discount all-inclusive net welfare flows. An agent-based capital market model audits the performance of alternative discounting approaches. There is no need to reconcile the discounting approaches. They should be viewed as complementary, not as competing. They are both necessary, and only jointly sufficient to achieve optimality in intertemporal resource allocation.
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