THE NORMATIVE INTEREST RATE
Abstract
The normative interest rate is defined as the discount rate the government ought to use in making its investment decisions. In the following sections various alternative ways of setting the level of the normative interest rate are examined. The return on the marginal private investment, the national time preference, and the long-term interest rate at which the government can borrow are all rejected on the basis that they are merely adaptive to the nation's interest rate structure which is determined in turn by the government itself. The concept of a positive national time preference is rejected for society as a whole, although it is considered appropriate for the individual because of his mortality. A zero normative interest rate is also rejected for society because of the declining marginal utility of a growing national product. The appropriate normative interest rate is then determined as a rate that is consistent with itself through the rate of growth of national product and the rate of decline in the marginal utility of national product that it implies.
Document Details
- Document Type
- Technical Report
- Publication Date
- Sep 15, 1959
- Accession Number
- AD0663408
Entities
People
- E. B. Berman
Organizations
- RAND Corporation