Calculating the social discount rate involves determining the appropriate discount factor for evaluating the present value of future social benefits and costs. In the context of public policy analysis, for instance, it plays a pivotal role in assessing the long-term impact of infrastructure projects, environmental regulations, and healthcare interventions.
Established by economists and policymakers, the social discount rate embodies the societal preference for present consumption over future consumption and accounts for the uncertainty and risks associated with long-term outcomes. Its significance lies in ensuring that public decisions are made with due consideration for intergenerational equity and the potential consequences of current choices on future generations.