Constraints on government investment opportunities and the choice of discount rate. Bradford, D. F American Economic Review, 65(5):887–99, 1975. abstract bibtex In his well-known paper on the choice of discount rate for public investment decisions, William Baumol noted the apparent impossibility of reconciling the arguments in favor of using a pure time preference rate with those in favor of using the marginal rate of return to private investment, the "opportunity cost" of funds. On the one hand it would seem there is a clear opportunity for welfare gain in undertaking an investment with rate of return in excess of a social time preference rate, however determined. On the other hand, it would clearly be possible to do even better by leaving the resources in the private sector if the rate of return on private investment exceeded the return on the government project....
@article{bradford_constraints_1975,
title = {Constraints on government investment opportunities and the choice of discount rate.},
volume = {65},
abstract = {In his well-known paper on the choice of discount rate for public investment decisions, William Baumol noted the apparent impossibility of reconciling the arguments in favor of using a pure time preference rate with those in favor of using the marginal rate of return to private investment, the "opportunity cost" of funds. On the one hand it would seem there is a clear opportunity for welfare gain in undertaking an investment with rate of return in excess of a social time preference rate, however determined. On the other hand, it would clearly be possible to do even better by leaving the resources in the private sector if the rate of return on
private investment exceeded the return on the government project....},
number = {5},
journal = {American Economic Review},
author = {Bradford, David F},
year = {1975},
keywords = {KR, Untagged},
pages = {887--99},
}
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