Uncertainty and social discounting for the very long term

摘要

Purpose - The purpose of this paper is to examine uncertainty in the social discount rate and explorernthe conditions favouring the application of higher present value welfare weights in the cost-benefitrnanalysis (CBA) of very long-term social projects. The plausibility, or otherwise, of these conditions is an important matter generally but especially in relation to major environmental concerns associatedrnwith climate change.rnDesign/methodology/approach - The uncertainty conditions for a plausible range of discount raternvalues are examined in relation to the social time preference rate (STPR). This particular discount raternis favoured theoretically and has, in the latest EC guide to CBA for EU member states, beenrnrecommended for application in European social project appraisal. Value ranges for the mainrnparameters are determined on the basis of surveys of empirical work and expert opinion. Thenrnsimulations based on alternative plausible probability distributions are used to explore the future timernpaths for discount factors.rnFindings - Present value welfare weights decline to less than 2 per cent within 200 years ifrndiscounting is based on the full STPR. However, important appraisal contexts are identified wherernonly the utility discount rate is relevant and this yields non-trivial discount factors for distant futurernyears.rnOriginality/value - The main new contribution is a direct empirical focus on the STPR and itsrncomponent parameters under uncertainty. Alternative sets of long-term discount factors are suggestedrnfor possible application in CBA. The paper will be of interest to academics specialising in appliedrnwelfare economics and also to practitioners involved in social project appraisal.