Working paper

The economic determinants of risk-adjusted social discount rates

Frédéric Cherbonnier, and Christian Gollier


In theory, the measurement of the social value creation of any investment project requires estimating its consumption-based CAPM beta in order to compute its associated risk-adjusted discount rate. In order to assist evaluators to perform this task, we link this social beta to the underlying technical and economic environment of the project, such as the price and income elasticities of the supply and demand for the flow of goods and services generated by the investment. When the consumers’ willingness to pay and the variable production cost are Cobb-Douglas in aggregate income and quantity, the beta of the infrastructure has a flat term structure, and is positive for a normal good. But when the infrastructure has a limited capacity, the term structure of the beta is decreasing. Finally, as an illustration, we explain why an investment in a transfrontier trading infrastructure line should have a negative beta for the country that most often uses the line to export its cheaper good (such as electricity).


Investment valuation; investment decision; CCAPM; risk-adjusted discount rate;

JEL codes

  • D61: Allocative Efficiency • Cost–Benefit Analysis
  • D92: Intertemporal Firm Choice, Investment, Capacity, and Financing
  • G11: Portfolio Choice • Investment Decisions


Frédéric Cherbonnier, and Christian Gollier, The economic determinants of risk-adjusted social discount rates, TSE Working Paper, n. 18-972, October 2018.

See also

Published in

TSE Working Paper, n. 18-972, October 2018