A Challenge to the Monopoly of the Rate of Discount in Investment Choices
Economic decisions almost always require intertemporal arbitrage. These arbitrage calculations are performed with the aid of a discount rate. In the classical theory of discounting, this rate is such that, for the marginal investments, the aggregated value of the benefit is equal to the invested capital The thesis of the present author is that the capital itself, independent of all intertemporal arbitrage, has an opportunity cost. The investment equilibrium depends not only on the discount rate, but also on the opportunity cost, which is as important as the rate of discount. The determination of the discount rate therefore is modified, as, of course, are all of the resulting choices.
KeywordsDiscount Rate Discount Factor Private Firm Optimal Programme Public Production
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