Asked by unknown person on Apr 26, 2024
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The social discount rate is an important component in net present value (NPV) calculations for public policies related to stock externalities, but economists do not agree on which value to use for this rate. Suppose a recent study reports that the NPV of a proposed carbon tax intended to reduce carbon dioxide emissions is positive, but the annual net benefits do not become positive until 2060. The authors of the study used a social discount rate of 2%. What can we say about the findings of the study if the research were repeated with a higher social discount rate?
A) NPV would decline, and the annual net benefits would become positive after 2060.
B) NPV would increase, and the annual net benefits would become positive before 2060.
C) NPV would decline, and the annual net benefits would not change.
D) The findings of the study would not change.
Social Discount Rate
The rate used to convert future costs and benefits to their present value in order to make decisions regarding public projects.
NPV Calculations
The process of determining the net present value of cash flows by discounting them to the present value using a specific rate.
Carbon Tax
A tax imposed on carbon dioxide emissions, designed to reduce the use of fossil fuels and lower greenhouse gas emissions.
- Acquire knowledge on the idea of social discount rate and its employment in policy analysis.
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Learning Objectives
- Acquire knowledge on the idea of social discount rate and its employment in policy analysis.
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