The entrepreneurial social discount rate: Risk premium and loss aversion in new ventures

David Ceballos Hornero, Samuel Mongrut Montalván

Research output: Contribution to journalArticle in a journalpeer-review

Abstract

We derive a mathematical extension of the social discount rate (SDR) in such a way that we can valuate intergenerational startups financed with personal and government funds at the aggregate level. The results imply that the precise determination of the SDR can change the financial priority of investment. Therefore, we recommend government officials to include factors of economic growth (wealth effect), intergenerational prevention (precautionary effect), loss aversion, and the specific risk of the business in the valuation of new ventures and in the estimation of the social discount rate to be more representative of the social utility. Our contribution lies in including a risk premium from the firm’s average non-systematic risk and the loss aversion of a representative investor in estimating the SDR.
Translated title of the contributionLa tasa de descuento social empresarial: Prima de riesgo y aversión a las pérdidas en nuevas empresas
Original languageEnglish
Number of pages24
JournalRevista Mexicana de Economía y Finanzas
Volume16
Issue number4
DOIs
StatePublished - 10 Mar 2021

Keywords

  • Social discount rate
  • non-systematic risk
  • loss aversion
  • entrepreneurship

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