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Risk-adjusted long-term social rates of discount for transportation infrastructure investment
Örebro University, Swedish Business School at Örebro University. (Nationalekonomi)ORCID iD: 0000-0003-1172-1076
Örebro University, Örebro University School of Business. (Nationalekonomi)
Örebro University, Örebro University School of Business. (Statistik)
2014 (English)In: Research in Transportation Economics, ISSN 0739-8859, Vol. 47, 70-81 p.Article in journal (Refereed) Published
Abstract [en]

We modify a method recently suggested by Weitzman (2012, 2013) for determining a risk-adjusted social discount rate (SDR) term structure consistent with both the (augmented) Ramsey rule and the consumption-based CAPM. Using this approach we estimate SDR for transportation infrastructure investments based on an analysis of correlations between transportation, split between road and rail, and between passenger travel and freight transport, and GDP in Sweden 1950–2011. We show that this can be estimated from two time-series following a random walk with drift, even if the variables are not co-integrated. Based on current estimates of the risk-free rate and the equity risk premium, we estimate the relevant SDR to be 5–6 per cent, possibly somewhat lower for investment in railroads for passenger travel, and only slowly declining within the investment horizon. This is higher than the current rates used in, for instance, Sweden, Germany and the UK.

Place, publisher, year, edition, pages
Elsevier, 2014. Vol. 47, 70-81 p.
Keyword [en]
Cost-benefit analysis, Rate of interest, Term structure, Risk, Ramsey equation
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-38641DOI: 10.1016/j.retrec.2014.09.020ISI: 000349567700008Scopus ID: 2-s2.0-84913554418OAI: oai:DiVA.org:oru-38641DiVA: diva2:763612
Available from: 2014-11-15 Created: 2014-11-15 Last updated: 2017-10-17Bibliographically approved

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Hultkrantz, LarsKrüger, NiclasMantalos, Panagiotis
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Swedish Business School at Örebro UniversityÖrebro University School of Business
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CiteExportLink to record
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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
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