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Discounting risks in the far future

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  • Lind, Niels

Abstract

Risks to life and health in the future must be discounted in quantitative risk analysis. Yet, risks in the distant future become trivialized if any reasonable constant interest rate is used. Our responsibility toward future generations rules out such drastic discounting. A solution to this problem is proposed here, resting on the ethical principle that our duty with respect to saving lives is the same to all generations, whether in the near or far future. It is shown that when a choice between prospects involving different risks has a financing horizon T, then ordinary principles of discounting apply up to this time T, while no further discounting is justifiable after T. The principle implies that risk events beyond the financing horizon should be valued as if they occurred at the financing horizon.

Suggested Citation

  • Lind, Niels, 2007. "Discounting risks in the far future," Reliability Engineering and System Safety, Elsevier, vol. 92(10), pages 1328-1332.
    • Handle: RePEc:eee:reensy:v:92:y:2007:i:10:p:1328-1332
    DOI: 10.1016/j.ress.2006.09.001
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    References listed on IDEAS

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    1. George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 573-597.
    2. Toth, Ferenc L, 1995. "Discounting in integrated assessments of climate change," Energy Policy, Elsevier, vol. 23(4-5), pages 403-409.
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    1. Fluixá-Sanmartín, Javier & Escuder-Bueno, Ignacio & Morales-Torres, Adrián & Castillo-Rodríguez, Jesica Tamara, 2020. "Comprehensive decision-making approach for managing time dependent dam risks," Reliability Engineering and System Safety, Elsevier, vol. 203(C).

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