DISCOUNT RATES IN PROJECT APPRAISAL SOCIAL AND PUBLIC WELFARE – REQUIREMENTS INNOVATION OF APPROACHES AND APPLICATION MODELS

Abstract

This paper examines the role of discount rates in the appraisal of social welfare and public projects, highlighting the limitations of applying market-based discount rates to projects with long-term social benefits. Given their intergenerational impacts and low financial returns, such projects require the use of a social discount rate to adequately capture socio-economic benefits. The paper reviews two key approaches: the Social Opportunity Cost of Capital (SOCR) and the Social Time Preference Rate (STPR). Based on this analysis, a combined social discount rate model incorporating an adjustment parameter α is proposed. In addition, a declining discount rate model over the project life cycle is suggested to enhance intergenerational equity. These approaches contribute to improving public project appraisal and the efficiency of public resource allocation.