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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. Meran, Georg, 2023. "Is green growth possible and even desirable in a spaceship economy?," Ecological Economics, Elsevier, vol. 213(C).
    2. Szekeres, Szabolcs, 2023. "The simple answer to the Social Discount Rate question," MPRA Paper 117843, University Library of Munich, Germany.
    3. Moritz A. Drupp & Zachary M. Turk & Ben Groom & Jonas Heckenhahn, 2023. "Limited substitutability, relative price changes and the uplifting of public natural capital values," Papers 2308.04400, arXiv.org, revised Mar 2024.

    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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