Rate of Discount

Now we come to the question of ascertaining the present value of the future costs and benefits, discounting process. Which rate of interest is to be used for the purpose?     There is a large number of interest rates prevailing in the private sector and there seems to no ground for selecting any of them. It is not clear whether any market determined rate would be sufficient for community investment decision. It is said that social time preference rate attaches  greater importance  to the future than private time preference. It seems best to use the government borrowing rate since it is easily applicable and is also a risk free rate of interest. Usually the interest rate is selected on the basis of observed rates ruling at the time for calculating present values. Social cost of time has also to be determined. Projects differ in their gestation period and in the durability of construction . On what basis are we to impute social value of time? Take first the gestation period. The social cost in gestation is the value of the output that could alternatively be obtained in the meanwhile with the same resources, the maximum that could be obtained with the shortest possible time. Projects with shorter gestation period but with higher output have, of course, to be preferred.