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The Future, Now: A Review of Social Discounting

Author

Listed:
  • Ben Groom

    (Department of Economics, University of Exeter Business School, Exeter, United Kingdom)

  • Moritz A. Drupp

    (Department of Economics and Center for Earth System Research and Sustainability (CEN), University of Hamburg, Hamburg, Germany)

  • Mark C. Freeman

    (University of York Management School, University of York, York, United Kingdom)

  • Frikk Nesje

    (Department of Economics, University of Copenhagen, Copenhagen, Denmark)

Abstract

Governments across the world are coming under increasing pressure to invest heavily in projects that have maturities of decades or even centuries. Key areas of concern include climate change mitigation, environmental and biodiversity protection, nuclear decommissioning, enhancing infrastructure and coastal defenses, and long-term health care management. Whether such projects are evaluated as being economically justifiable depends on the social discount rate (SDR) that the government deploys. This variable converts the future costs and benefits of public policy into their value today, thereby facilitating the comparison of social investments with different maturities. Critically, the result of such analysis is extremely sensitive to small changes in the choice of the SDR, yet policy guidelines differ widely across countries and international institutions. In this article, we provide a review of the academic literature on long-term SDRs, with particular emphasis on how these insights have been integrated into governmental guidance.

Suggested Citation

  • Ben Groom & Moritz A. Drupp & Mark C. Freeman & Frikk Nesje, 2022. "The Future, Now: A Review of Social Discounting," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 467-491, October.
    • Handle: RePEc:anr:reseco:v:14:y:2022:p:467-491
    DOI: 10.1146/annurev-resource-111920-020721
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    Citations

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    Cited by:

    1. Kalsbach, Oliver & Rausch, Sebastian, 2024. "Pricing carbon in a multi-sector economy with social discounting," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    2. Özlem Turan & Serkan Gurluk, 2024. "The Impacts of Social Discount Rate in Countries Striving for Industrialization," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 5428-5442, June.
    3. Stefan A. Lipman & Arthur E. Attema, 2024. "A systematic review of unique methods for measuring discount rates," Journal of Risk and Uncertainty, Springer, vol. 69(2), pages 145-189, October.
    4. De Donno, Marzia & Menegatti, Mario, 2024. "Preferences on discounting under time risk," Journal of Mathematical Economics, Elsevier, vol. 113(C).
    5. Meran, Georg, 2023. "Is green growth possible and even desirable in a spaceship economy?," Ecological Economics, Elsevier, vol. 213(C).
    6. Moritz A. Drupp & Zachary M. Turk & Ben Groom & Jonas Heckenhahn, 2023. "Global evidence on the income elasticity of willingness to pay, relative price changes and public natural capital values," Papers 2308.04400, arXiv.org, revised Nov 2024.
    7. Jonas Heckenhahn & Moritz A. Drupp, 2024. "Relative Price Changes of Ecosystem Services: Evidence from Germany," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(3), pages 833-880, March.
    8. Szekeres, Szabolcs, 2023. "The simple answer to the Social Discount Rate question," MPRA Paper 117843, University Library of Munich, Germany.
    9. Cahen-Fourot, Louison & Campiglio, Emanuele & Daumas, Louis & Miess, Michael Gregor & Yardley, Andrew, 2023. "Stranding ahoy? Heterogeneous transition beliefs and capital investment choices," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 535-567.
    10. Madureira, Pedro & Squires, Dale & Ribeiro, Luísa Pinto, 2023. "The International Seabed Authority and the United Nations 2030 Agenda for sustainable development," Resources Policy, Elsevier, vol. 86(PA).

    More about this item

    Keywords

    governmental guidance; opportunity cost of capital; project valuation; Ramsey rule; social discount rates;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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