Discounting and sustainable development: adjusting the rate, abandoning the process, or extending the approach

SUMMARY

Discounting of future costs and benefits is an integral feature of economic appraisal, and one associated with considerable controversy. The fundamental objection to discounting has been the apparent disregard for future as compared to current concerns. Such intergenerational equity issues form the basis of the call for sustainable development, and the relatively recent focus on sustainability has renewed the focus on the role of discounting. A number of alterations have been proposed to reduce the differential between present and future concerns which results from discounting, the most radical of which is the abandoning of discounting altogether. This extreme is rejected, however, on the grounds of equity with regard to the current generation, and the potential for reduced welfare for both current and future generations. It is argued that sustainability can best be incorporated into decision making by applying physical sustainability constraints to otherwise economic efficiency-derived selection criteria. This compromise can ensure the maintenance of natural capital for the future whilst not constricting economic progress which can benefit both present and future generations.

Key words:

• discounting
• sustainable development
• cost-benefit
• natural capital