ABSTRACT
The m ost recent d iscou n tin g g u id e lin es for federal agen cies w ere issued by the Office o f M anagem ent and B u dget (OMB) in 1981. They require that a d iscou nt rate o f 10 percen t be used for eva lu a tin g federal a c tio n s .1 H ow ever, the recent econom ics literature on the "shadow price o f cap ital" approach to discou ntin g has e stab lish ed that the soc ia l rate o f tim e preference is the appropriate rate at w h ich to d iscou n t the benefits and costs o f pub lic projects, once they are expressed in term s o f con su m ption ga in ed an d foregone [Bradford, 1975; M endelsohn, 1981; Lind, 1982 and 1986]. This a lternative approach to d iscou ntin g has not yet m et w ith broad accep tan ce in federal agencies, partly because it is m ore difficult to exp la in and im p lem en t than conventional d iscounting , and p artly b ecau se o f a p erceived b ias created against federal actions by the procedure used to convert cap ita l costs in to their con su m p tion eq u ivalen ts.
