Future Generations and the Social Rate of Discount
- 1 October 1973
- journal article
- research article
- Published by SAGE Publications in Environment and Planning A: Economy and Space
- Vol. 5 (5) , 611-617
- https://doi.org/10.1068/a050611
Abstract
This paper reexamines the case for discounting for time in public investment appraisal where long-term or irreversible effects on future generations are involved. It is concluded that—while, in the short-term, considerations of equity reinforce the commonly advocated case for discounting for time—in evaluating long-term or irreversible effects, current discounting procedures require the doubtful assumption of perpetual exponential growth of real income. However, if discounting were abandoned, use of the standard cost—benefit-analysis framework would require the forecasting of shadow prices for all future dates, unless an arbitrary time horizon is adopted. Thus cost—benefit analysis does not appear to be a satisfactory method for evaluating effects on future generations.Keywords
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