Opportunity Cost of Capital, Marginal Cost of Funds and Numeraires in Benefit-Cost Analysis

Szekeres, Szabolcs (2023): Opportunity Cost of Capital, Marginal Cost of Funds and Numeraires in Benefit-Cost Analysis.

Abstract

The choice of social discount rate: social time preference rate (STPR) or social opportunity cost rate (SOCR), a long-standing dilemma, is related to the choice of BCA numeraire. A numerical example examines the consequences of discount rate choices and that of using two proposed methods of reconciling their differences. The role of the Marginal Cost of Funds and the Shadow Price of Capital are considered. While it is possible to reach analogous numerical results in any numeraire using conversion factors, the choice of numeraire should depend on the objective of the BCA performed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Social discount rate; STP discounting; SOC discounting; Descriptive discounting; Prescriptive discounting; Two-rate discounting; Shadow Price of Capital; Marginal Cost of Funds.
• Subjects: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; H - Public Economics > H4 - Publicly Provided Goods > H43 - Project Evaluation ; Social Discount Rate

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