Revisiting public investment : consumption equivalent public capital and the social discount rate

The consumption equivalence method is the theoretical basis of public cost-benefitanalysis. Consumption equivalence public capital prices are explicitly introduces in orderto sufficiently care for the opportunity cost of public expenditure. This can solve thedispute about the social rate of discount within public cost-benefit analysis witch wasgenerated on a criterion looking similar to the capital value formula, known as Lind’sapproach. The social rate of discount is liberated from opportunity costs considerationsand the discounting away of the effects for future welfare vanishes. The correspondingquestion whether one should accept a positive value of the pure rate of social timepreference is an old issue. Its current state between the prescriptive and descriptive viewcan also be interpreted as a consequence of the oversimplification of standard cost–benefit analysis. But apart from an economic self-process the pure rate of social timepreference is also defined as a business-as-usual value of social distance discounting. Hence, a political choice has to be made about this rate which is free in principal.