Multiple Discount Rates for Evaluating Public Forestry Investments

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Abstract
The critical nature of the discount rate in public forestry investment evaluation is generally recognized, as is the philosophical conflict between the need for a high rate which reflects current economic and social realities, and a low rate which assures permanence and the attainment of long-term social welfare goals. Others have suggested a dual rate approach for solving this issue. The rationale leading to their dual-rate concept can be expanded into a multiple-rate concept. In addition, empirical evidence supports a multiple rate concept: one in which rates would be influenced by the duration of investment and approximated by a formula-based continuum or a multiple-step schedule. No attempt is made to set specific rates; however, there is evidence that rates above 8% are reasonable for only a decade or two, rates above 5% reasonable for durations up to approximately 50 years, and lower rates being reasonable for longer durations.

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