Parfit (1971) terminology, future societies. Thus it should not be surprising that empirical studies on the issue rely on very different values for _β_ .

On the low side of the spectrum we have the time preference rate used in the Stern Review: .1 percent. The Stern review argues for this near zero rate of time preference on ethical grounds, as it would imply intergenerational neutrality. However, it is worth mentioning that with this choice, the savings/investment rate tends to 1/ε.<sup>12</sup> As we discuss below, typical values of ε are in the 1-2 range, something that in turn would imply saving rates of between 50 and 100 percent. In other words, a near zero time preference rate would imply that current generations should dramatically reduce their levels of consumption, in some plausible cases, to subsistence levels. This is, clearly, totally unrealistic.

At the other side of the spectrum Little and Mirrless (1974) put an upper bound for this parameter at about 3 percent. However most of the existing applied work relies on values of _β_ that fall in between these extremes -with typical values hovering around 1-1.5 percent. These values are in most of the cases based on average death rates, a reflection of the possibility that individuals’ discount rates are affected by the probability of survival from one period to the other (see Pearce and Ulph, 1999 for a discussion of a mortality based discount rate), or a combination of mortality rates and pure time discounting.

For example, for the UK, Kula (1987) puts _β_ at 1.2 on the basis of the probability of death in 1975, whereas Scott (1989) estimates it at about 1.3 percent by merging mortality data with a pure time preference rate derived from more than one century of data on UK savings behavior. Also for the UK Pearce and Ulph (1999) use an estimate of 1.1 percent. For countries other than the UK, the typical values are also in this range. Kula (2004) in his study of the social rate of return for India uses a value of _β_ at 1.3. Similarly, in their study of the social rate of return in six developed countries (Australia, France, Germany, Japan, UK and US) Evans and Sezer (2004) use values that range between 1 and 1.5 percent on the basis of different catastrophe risk considerations for each country.

In this paper, we use a common time preference rate for all the countries in our sample, and rely on the lower end of the typical range for the time preference rate (i.e. _β=1_ ) as the most appropriate value. This choice is the result of correcting downwards the middle point of that range. The correction is motivated by the fact that Latin American countries have lower mortality rates than developed countries. Table 1 presents crude death rates (defined as the number of deaths occurring during the year per 100 population) corresponding to the nine Latin American countries under analysis in this paper and to nine major developed countries. The source of the data is World Development Indicators 2007. Inspection of this table indicates that death rates in the Latin American sample are around .6 whereas in the developed countries are around .8.<sup>13</sup> This would imply that on

> 12 Strictly speaking the expression 1/ε corresponds to the case _β_ =0.

> 13 The averages reported by the World Development Indicators for the full sample of Latin American and the full sample of high income countries are also .6 and .8 respectively.

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