This report was commissioned by GiveWell and produced by Rethink Priorities from June to July 2023. We revised this report for publication. GiveWell does not necessarily endorse our conclusions, nor do the organizations represented by those who were interviewed.
The primary focus of the report is to review GiveWell’s current formulation of its discount rate by recommending improvements and reinforcing justifications for areas that do not require improvement. Our research involved reviewing the scientific and gray literature, and we spoke with 15 experts and stakeholders.
We don’t intend this report to be Rethink Priorities’ final word on discount rates, and we have tried to flag major sources of uncertainty in the report. We hope this report galvanizes a productive conversation within the global health and development community about discounting practices in cost-effectiveness analyses. We are open to revising our views as more information is uncovered.
Notes on the scope and process of this project
This project aims to serve the dual purposes of reviewing GiveWell’s current approach to calculating its discount rate(s) to:
- Provide recommendations to GiveWell on how its approach to discount rates could be improved.
- Strengthen the justifications for its approach in cases where we do not recommend changes.
The direction of this project was mainly guided by our priors that a prioritized investigation into three aspects could potentially make the biggest difference to GiveWell’s discount rate:
- A review of how other major organizations in the global health and development space (within and outside effective altruism) choose and justify their discount rates.
- A review of GiveWell’s overall approach to calculating discount rates to determine:
- Whether GiveWell should use a different overall calculation approach.
- Whether GiveWell should think differently about discounting consumption vs. health outcomes.
- A review of the pure time preference component of GiveWell’s discount rate.
We also reviewed several other components of the discount rate (consumption growth rate, compounding non-monetary benefits, temporal uncertainty), but decided to spend less time on those as we deemed it less likely to make major recommendations or expected it would be harder to make meaningful progress. Table 1 summarizes our recommendations for GiveWell’s discounting practices.
The majority of this report focuses on the discount rate used for consumption benefits, as this appears to be the “main” discount rate used by GiveWell, but we also discuss discounting of health benefits. We do not discuss discounting of costs in this report as (1) GiveWell’s cost-effectiveness models rarely involve discounting costs, and (2) our general impression is that the typical approach across organizations is to discount monetary costs and benefits equally and we have seen very little discussion of alternative approaches. A review of the shape of the utility functions used is also out of scope for this review. Moreover, we focus exclusively on temporal discounting. If the time frame is not specified, all discount rates expressed as percentages are annual. Due to the variety of existing opinions and approaches with respect to discount rates and a relative lack of consensus, we opted to approach this project from a perspective of figuring out whether there are any compelling reasons to change GiveWell’s current approach, rather than starting from scratch and coming up with a discount rate independently of the current approach.
Summary of recommendations
Table 1: Summary of Rethink Priorities’ recommendations for GiveWell’s discounting
|Current GiveWell choice
|Rethink Priorities’ recommendation
|Overall annual discount rate
(if current inconsistent choice of η is kept)
|Overall approach to calculating the discount rate
|Social rate of time preference (SRTP) approach
|GiveWell’s current SRTP approach vs. Ramsey equation
|Discounting consumption vs. health benefits
|Discount health benefits using only the temporal uncertainty component
|Consumption growth rate
|Pure time preference rate
Keep current assumption of 0%
Tentatively keep current assumption of 1.4%
|Compounding non-monetary benefits
To read the full report, please click here.
Jenny Kudymowa and James Hu jointly researched and wrote this report. Jenny also served as the project lead. Melanie Basnak and Tom Hird supervised the report. Special thanks to Bob Fischer, Sagar Shah, and Ben Snodin for their generous assistance in specific sections of the report, and further thanks to Andrew Martin (GiveWell), Ruby Dickson, and Aisling Leow for helpful comments on drafts. Thanks also to Anthony Boardman (University of British Columbia), Vicky Cox (Charity Entrepreneurship), Sam Donald (Open Philanthropy), Spencer Ericson (SoGive), Sanjay Joshi (SoGive), James Snowden (Open Philanthropy), Joel McGuire (Happier Lives Institute), Caitlin McGugan (GiveWell), Andreas Mogensen (Global Priorities Institute), Mark Moore (Simon Fraser University), Chris Smith (Open Philanthropy), Katie Stanford (The Life You Can Save), Dan Stein (IDinsight), Aidan Vining (Simon Fraser University), and Damian Walker (Management Sciences for Health) for taking the time to speak with us.
GiveWell provided funding for this report, but it does not necessarily endorse our conclusions.
This is the discount rate that is discussed in GiveWell’s 2020 discount rate write-up.
The only case we’ve seen different discounting approaches being suggested for monetary benefits and costs is Dhaliwal et al. (2012, p. 38) (J-PAL): “The discounting of costs is representative of the choice a funder faces between incurring costs this year, or deferring expenditures to invest for a year and then incurring costs the next year. An organization or government’s discount rate is usually calculated as the social opportunity cost of capital (SOC). [...] The discounting of benefits, on the other hand, represents how an end user of the program would trade off between the uses of the services this year versus next year. The appropriate discount rate for such a calculation is the social rate of time preference (SRTP) [...].” However, J-PAL itself does not use differential discounting of costs and benefits, but SOC for both outcomes.
GiveWell uses three different utility functions for its cost-effectiveness analyses: an isoelastic utility function with η = 1 (also called log-utility) to model consumption benefits, an isoelastic utility function with η = 1.59 to calculate the “improving circumstances” or “wealth effect” component of the discount rate, and a linear utility function for health outcomes.
We are aware that GiveWell uses other types of discounting (e.g., generalizability/evidence discounting). We do not focus on those other types of discounting in this report.