Approaches to Measuring Social Discount Rate: A Bangladesh Perspective

Abstract

Social discount rate (SDR) reflects a society’s relative valuation on today’s well-being versus well-being in the future. This paper reviews various methods of measuring social discount rate, with particular emphasis on Social Rate of Time Preference (SRTP) and Social Opportunity Cost of Capital (SOC) framework. The author then employs Monte Carlo Simulation to calculate SRTP value for Bangladesh followed by one using SOC framework. The final result suggests that the Government of Bangladesh should use a value between 9-11% as optimal Social Discount Rate for various long term projects. The discount rate is similar to the ones used by Government of Pakistan, India and China