Positive Social Time Preference

Recent debates have made it clear that the choice of a social discount rate has enormous consequences for the amount of carbon abatement that will be recommended. The social discount rate determines how future costs are to be compared to present costs. Philosophers have been almost unanimous in endorsing the view that the only acceptable social rate of time preference is zero, a view that, taken literally, has either absurd or extremely radical implications. The first goal of this chapter is to show that the standard arguments against temporal preference are much less persuasive than they are usually taken to be. The second goal is to explore three different avenues of argument that could be adopted in order to show that temporal discounting of welfare may be permissible. The chapter concludes with a suggestion for how deontologists could accept a pure time preference derived from the current global death rate.

Discounting in economic evaluation of healthcare interventions: what about the risk term?

Results from economic evaluations of long-term outcomes are strongly dependent on the chosen discount rate. A recent review of national guidelines for evaluation of healthcare interventions finds that “the level of currently used discount rates seems relatively high in many countries”. However, this conclusion comes from a comparison to rates derived or observed for investments in safe assets, while rate of return requirements are typically considerably higher when investment involves risk. This paper reviews recent literature on how to account for project-specific risk in determination of the social rate of discount and discusses implications for economic evaluation of healthcare interventions. It concludes that the available empirical evidence strongly suggests that the demand for and consumer value of health and healthcare is co-variant with income, which therefore implies that there is a non-diversifiable risk component of health-related investment.

Discounting and Climate Policy

The social rate of discount is a crucial driver of the social cost of carbon (SCC), that is, the expected present discounted value of marginal damages resulting from emitting one ton of carbon today. Policy makers should set carbon prices to the SCC using a carbon tax or a competitive permits market. The social discount rate is lower and the SCC higher if policy makers are more patient and if future generations are less affluent and policy makers care about intergenerational inequality. Uncertainty about the future rate of growth of the economy and emissions and the risk of macroeconomic disasters (tail risks) also depress the social discount rate and boost the SCC provided intergenerational inequality aversion is high. Various reasons (e.g., autocorrelation in the economic growth rate or the idea that a decreasing certainty-equivalent discount rate results from a discount rate with a distribution that is constant over time) are discussed for why the social discount rate is likely to decline over time. A declining social discount rate also emerges if account is taken from the relative price effects resulting from different growth rates for ecosystem services and of labor in efficiency units. The market-based asset pricing approach to carbon pricing is contrasted with a more ethical approach to policy making. Some suggestions for further research are offered.

Discounting Environmental Benefits for Future Generations

The standard approach to evaluating a long-term project is to use the social rate of time preference to discount the benefits and costs of future generations. A difficulty with this approach is that there is no consensus on the values of the required parameters that reflect intergenerational equity concerns. Assuming the existence of a coordinating debt policy, this article establishes a project evaluation rule that identifies Pareto-improving projects and is therefore free of value judgment. This article goes beyond the existing analysis of intergenerational discounting by exploring the implications of tax distortions in the capital market that drive a wedge between the gross (before-tax) and the net (after-tax) rates of return. Our project evaluation criterion is stricter than that recommended in government guidelines, causing fewer environmental projects to be accepted.

ECONOMIC EVALUATION OF SOME AGRICULTURAL INITIATIVE PROJECTS IN IRAQ

This research aims to identify the economic and national feasibility of some agricultural activities benefiting from the agricultural initiative's lending funds, as well as to show the impact of the agricultural initiative on these projects in terms of raising social profitability, in the light of the results of the national evaluation criteria addressed in the research. All the studied projects have achieved a net added value at the level of the national economy. The dairy cattle breeding project recorded the lowest net added value of about 914 million dinars (about 745 thousand dollars), and poultry projects achieved the highest added value of about 5 billion ID for the projects of table eggs production 4.9 billion ID for broiler projects, while the relative change in the standard showed that and the broiler production project is one of the most benefited from loan subsidies as the rate of change reached about 25%, while the project of broiler production and poultry hatchery and the project of raising milk cow have negative social return .The initiative's subsidies have increased the social rate of return for these projects to around 24%, 20.5%, and 20%. Agricultural loans from the agricultural initiative raise the national profitability of agricultural projects, which would contribute to the process of agricultural development in Iraq.

A protocol for the estimate of the social rate of time preference: the case studies of Italy and the USA

PurposeThe purpose of the paper is to characterize an evaluation protocol of the social discount rate (SDR). This is based on the social rate of time preference (SRTP) principles, according to which the investment selection process must tend to maximize the utility of the community.Design/methodology/approachThe theoretical reference of the evaluation protocol is represented by the Ramsey formula. It is widely used in many countries with advanced economics for the SRTP estimation, through the maximization of the Social Welfare Function (SWF).FindingsThe protocol structure and the protocol applications to the Italian and US economies explain how the SDR value is influenced by the socio-economic structure of the single nation.Research limitations/implicationsThe strong variability of the results of the SDR according to the theoretical approach of reference and the operating path that follows can lead to judgments decidedly divergent on the acceptability of the public project, hence, the important policy implications for the entire allocation process of public resources.Practical implicationsThe applications allow to highlight the important operational problems that must be resolved with regard to the choice of the time intervals of the evaluations, as well as logical-operational tools to be used to express estimates of parameters.Social implicationsThey are relevant in relation to the effects of a more equitable allocation of the resources.Originality/valueThe protocol for the SDR estimation is based both on solid disciplinary principles and on objective data of non-complex availability and representative of the economic and socio-demographic context of the country in which the decision-making process is implemented.

Social Discount Rates for Seventeen Latin American Countries: Theory and Parameter Estimation

This article presents new estimates of social discount rates (SDRs) for seventeen Latin American countries for use in public project evaluation. We derive the SDRs based on the social rate of time preference method and provide the required parameter values. These rates range from 2.14 percent for Paraguay to 5.83 percent for Chile. The unweighted average recommended rate is 3.77 percent, which is close to the rates mandated by most European countries. We also review current governments’ SDR practices worldwide, including Latin America, and find that the proposed country-specific SDRs are significantly lower and less dispersed across countries than the rates most Latin American countries currently recommend. Using four archetypal projects profiles, we show the potential impact on the net present values of varying important parameters, including growth rates.

Climate Ethics: Justifying a Positive Social Time Preference

Recent debates over climate change policy have made it clear that the choice of a social discount rate has enormous consequences for the amount of mitigation that will be recommended. The social discount rate determines how future costs are to be compared to present costs. Philosophers, however, have been almost unanimous in endorsing the view that the only acceptable social rate of time preference is zero, a view that, taken literally, has either absurd or extremely radical implications. The first goal of this paper is to show that the standard arguments against temporal preference are much less persuasive than they are usually taken to be. The second goal is to explore two different avenues of argument that could be adopted, in order to show that temporal discounting of welfare may be permissible. The first involves simply an application of the method of reflective equilibrium, while the second involves consideration of the way that our abstract moral commitments are institutionalized.