Social Discount Rate

Definition

Health Economics

  • This is the discount rate (s) stipulated for use in public decision-making. In evaluating health-related projects, there is controversy as to whether benefits ought to be discounted at a lower rate than costs. There is also disagreement as to the principles that ought to govern the choice of discount rate even if there is to be but one. One view is that the opportunity cost of capital for the economy as a whole ought to be used so that health-related investments are costed in similar ways to other investments (some argue that this rate might be modified in the case of public sector health investments to reflect a presumed lower risk; others that risk adjustments ought to be made separately and not confounded with time discounting). There is no agreement on whether a marginal or an average opportunity cost of capital ought to be used. A second view is that the rate ought to correspond to the average (or possibly marginal) rate of time preference in the community as a whole. A third view is that, because of the high degree of publicness of health investments, the social rate ought perhaps to be a rate chosen in a deliberative way by society's representatives (effectively, politicians or people appointed by accountable politicians) bearing in mind whatever ethical and other considerations they choose.
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