Social discounting: the SOC/STP divide
Produced as part of the Managing climate risks and uncertainties and strengthening climate services CCCEP research programme theme
More than 50 years of social discounting literature have not delivered satisfactory academic guidance to government practitioners. Users of the social opportunity cost (SOC) paradigm do not always appreciate that it is inappropriate for ‘choice of technique’ analysis, while users of the social time preference (STP) paradigm do not always appreciate that, for cost–benefit analysis, separate account needs to be taken of the opportunity cost of public spending relative to consumption.
Recent papers by leading SOC advocates and by the US Council of Economic Advisers open a window for a better understanding of both paradigms. This paper offers theoretical and operational observations from an experienced practitioner’s perspective, to help advance, where possible, understanding within institutions where debate on these paradigms is active.
This paper is an update of an earlier version published in March 2016.