Pitfalls in estimating social discount rates: a case study

This article is on the practicability of applying social and economic parameters for cost-benefit analysis in developing countries. The practical problems of estimating parameters are illustrated with various calculations of the discount rate for Nepal. The range of results, even on the basis of various simplifying assumptions, turns out to be so wide that little trust could be placed in any one of them. One implication is that detailed research into parameters is of dubious value in project appraisals. It is suggested that much time and effort could be saved, with little fear of reduced quality, by using standardised sets of parameters, partially worked out for groups of economies and used as general guidelines. This would allow the reed business of project analysis to be left to informed judgement on the ground.