Ethics, irreversibility, future generations and the social rate of discount

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Abstract
This paper explores one of the basic evaluation criteria used by economists when deciding whether or not to invest in social projects, namely social cost‐benefit analysis. The ethical judgements underlying cost‐benefit are explained and the idea of “value sensitivity analysis” is introduced. By this technique we aim to see how far the judgements of a cost‐benefit study are altered if the underlying ethical rules are changed. Not surprisingly, the conclusion is that outcomes are value sensitive, but the paper shows that it takes very small changes in the underlying rules to produce quite different answers. The problem is then placed in the context of inter‐generational decisions relating to investments that have some irreversible environmental consequence. It is shown that if a mechanism of inter‐generational compensation for damage done is introduced, all the ethical rules discussed give the same decision criteria. But it is then argued that such “intergeneration compensation funds” are not feasible, leaving us with the essential conclusion that major environmental consequences can be the direct result of ethical ground‐rules which, if changed slightly, would remove or ameliorate those consequences.

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