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The Social Discount Rate for Silvicultural Investments

Author(s) or contact(s): T. Heaps and B. Pratt
Source: Research Branch
Subject: Forest Economics
Series: FRDA Report
Other details:  Published 1989. Hardcopy is available.
 

Abstract

The method by which the real social discount rate has been estimated for Canada is reviewed. Some of the assumptions which were used to obtain the current rate of 8 - 10% are criticized. In particular, it is shown that the real marginal and average rates of return on investment are not equal. A method of estimating the real marginal rate on return on investment is found. This method and other information is used to revise the estimate of the real social discount rate to 3 - 7%. It is proposed that where possible expected net present values should be used to screen public investments in silviculture. An argument is made that the benefits and costs of such investments should not be adjusted for risk. The risk free social discount rate should be used for expected net present value calculations. Historically, this rate has ranged between 3 and 5%.

FRDA Research Report 071 (2891 KB)

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Updated July 24, 2015