Economics and the Future

Economics and the Future

Time and Discounting in Private and Public Decision Making

Edited by David J. Pannell and Steven G.M. Schilizzi

Economics and the Future tackles the discounting issue from a number of angles, ranging from relatively short-term private financial decisions, to very long-term public issues spanning generations. The authors present differing perspectives and original ideas in a style that remains accessible while addressing some of the more difficult questions about discounting in theory and practice. It reveals that the economic issues regarding time are embedded in a broader social, ethical and philosophical context.

Chapter 11: Discounting the Distant Future: Why So Many Voices and So Little Consensus?

Steven G.M. Schilizzi

Subjects: economics and finance, environmental economics, public finance, environment, environmental economics

Extract

Steven G.M. Schilizzi In politics we have so firm a faith in the manifestly unknowable future that we are prepared to sacrifice millions of lives to an opium smoker’s dream of Utopia or world dominion or perpetual security. But where natural resources are concerned, we sacrifice a pretty accurately predictable future to present greed. We know, for example, that if we abuse the soil it will lose its fertility; that if we massacre the forests our children will lack timber and see their uplands eroded, their valleys swept by floods. Nevertheless, we continue to abuse the soil and massacre the forests. In a word, we immolate the present to the future in those complex human affairs where foresight is impossible; but in the relatively simple affairs of nature, where we know quite well what is likely to happen, we immolate the future to the present. Aldous Huxley (1944, p. 286) SUMMARY The use of standard discounting procedures in decisions involving decades or centuries leads to results which many find unacceptable or absurd. The power of exponential functions writes off any far distant damages as negligible, no matter how dramatic the impacts on future generations. This chapter reviews the various approaches economists have used to grapple with this problem. If the distant future is to be discounted, there are three possible ways to do so: not to discount, use a low discount rate, or use a declining discount rate. Each approach, however, has problems of its own. These seem to boil...

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