The Entrepreneurial Social Discount Rate: Risk Premium and Loss Aversion in New Ventures

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 inves...

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Main Authors: David Ceballos Hornero, Samuel Mongrut Montalván
Format: Article
Language:English
Published: Instituto Mexicano de Ejecutivos de Finanzas 2021-03-01
Series:Revista Mexicana de Economía y Finanzas Nueva Época REMEF
Subjects:
Online Access:https://www.remef.org.mx/index.php/remef/article/view/610
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author David Ceballos Hornero
Samuel Mongrut Montalván
author_facet David Ceballos Hornero
Samuel Mongrut Montalván
author_sort David Ceballos Hornero
collection DOAJ
description 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.
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spelling doaj.art-a3da697836834e5c84ccaf8d588f98be2022-12-22T02:31:40ZengInstituto Mexicano de Ejecutivos de FinanzasRevista Mexicana de Economía y Finanzas Nueva Época REMEF2448-67952021-03-01164e610e61010.21919/remef.v16i4.610417The Entrepreneurial Social Discount Rate: Risk Premium and Loss Aversion in New VenturesDavid Ceballos HorneroSamuel Mongrut MontalvánWe 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.https://www.remef.org.mx/index.php/remef/article/view/610social discount rate, non-systematic risk, loss aversion, entrepreneurship.
spellingShingle David Ceballos Hornero
Samuel Mongrut Montalván
The Entrepreneurial Social Discount Rate: Risk Premium and Loss Aversion in New Ventures
Revista Mexicana de Economía y Finanzas Nueva Época REMEF
social discount rate, non-systematic risk, loss aversion, entrepreneurship.
title The Entrepreneurial Social Discount Rate: Risk Premium and Loss Aversion in New Ventures
title_full The Entrepreneurial Social Discount Rate: Risk Premium and Loss Aversion in New Ventures
title_fullStr The Entrepreneurial Social Discount Rate: Risk Premium and Loss Aversion in New Ventures
title_full_unstemmed The Entrepreneurial Social Discount Rate: Risk Premium and Loss Aversion in New Ventures
title_short The Entrepreneurial Social Discount Rate: Risk Premium and Loss Aversion in New Ventures
title_sort entrepreneurial social discount rate risk premium and loss aversion in new ventures
topic social discount rate, non-systematic risk, loss aversion, entrepreneurship.
url https://www.remef.org.mx/index.php/remef/article/view/610
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