Comment on Burgess and Zerbe’s “Appropriate Discounting for Benefit-Cost Analysis”

Abstract

This is a comment on a paper by David F. Burgess and Richard O. Zerbe. It derives a different set of conclusions than the cited authors do from the customary premises underlying benefit-cost analysis. It concludes that capital should be shadow priced, and that the appropriate discount rate to use in benefit-cost analysis is the interest rate of the capital market to which the public sector has access. It proposes that a plausible source of the great divergence in approaches to discounting stems from different answers being given to the question of whether present day consumption has a future consumption opportunity cost.