ABSTRACT
In a perfectly competitive world, the choice of a discount rate for relatively shortrun policies would be very easy. A competitive market for loans would provide an equilibrium interest rate for each dollar loaned or borrowed, and this rate would be the appropriate discount rate. When complications such as taxes, risk aversion, and imperfect markets are included, finding an ideal discount rate becomes far more difficult, even for experts. Long-run policies that affect many future generations also raise the issue of intergenerational equity, which adds another set of complications to our discounting choices. In this chapter, we will briefly review the discount rate in a perfectly competitive case, and then consider the implications of a few of the most important complicating factors. Unfortunately, there are many more.
