FUTURE GENERATION AND THE SOCIAL RATE OF DISCOUNT

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. /AUTHOR/

  • Authors:
    • NASH, C A
  • Publication Date: 1973-9

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Filing Info

  • Accession Number: 00202395
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Apr 3 1974 12:00AM