Should policymakers use a social discount rate?
Discount rates are commonly used in the world of finance. Would you rather have $1 today or $1 in 5 years? Most people would prefer $1 today. For instance, if you had $1 today and put it in a bank account, it would be worth more than $1 in 5 years. Thus, when making financial decisions, firms and many individuals consider funds received today to be more valuable than those in the future. An important question is, should we use a social discount rate? For instance, consider the impact of global warming. Averting global warming will have immediate costs but the benefits would accrue to future generations. Should we use a social discount rate to “discount” the benefits received by future generations in any cost-benefit analysis? According to a paper by Cowan and Parfit (1992) argue that a social discount rate should not be used when making policy decisions. Their logic is as follows:
Perhaps the best argument is just to implement the math.
The paper continues with economic arguments against a social discount rate (e.g., opportunity cost, marginal productivity of capital, positive time preferences) as well as some challenges in using altruism or bequests to justify a social discount rate. Do read the whole article. Via Dental Tips http://www.rssmix.com/via Blogger http://jeanxrussell.blogspot.com/2021/10/should-policymakers-use-social-discount.html October 08, 2021 at 03:45PM
0 Comments
Leave a Reply. |