PATIENCE AND THE SOCIAL DISCOUNT RATE

Abstract

Several governments set the social discount rate using a Ramsey Rule that treats pure time preference as a separate parameter. Standard arguments for declining discount rates rest on uncertainty about growth or preferences, or on aggregation across people who disagree about the rate. We add a different reason: pure time preference may itself be falling over time. Real interest rates have declined for centuries, even as growth has risen. In a Ramsey framework, that pattern points to a falling pure-time-preference component. One structural explanation is selection towards patience: if patience differs across people and persists across generations, the population-weighted distribution shifts, so that the value of pure time preference used to represent society’s impatience declines not only across horizons but across generations. We illustrate with the UK Green Book, which is the most transparent Ramsey-based framework currently in use and under active review.