Discounting for Intergenerational Investments: Individual Discount Rate for Close and Remote Beneficiaries

• Authors: Foltyn-Zarychta Monika

Title variants

PL

Dyskontowanie inwestycji międzypokoleniowych: indywidualne stopy dyskontowe dla bliskich i odległych beneficjentów projektu

• Languages of publication: EN PL

Abstracts

EN

The paper aims to diagnose whether it is justified in investment appraisal to apply a separate treatment (in terms of the value of the discount rate) for close-in-time versus distant-in-time project effects as well as for effects applying to close-in-space versus distant-in-space beneficiaries. The analysis rests on a survey asking Polish citizens to state their indifference points between lives saved now and in the future (with delays from 10 to 150 years to capture temporal distance) for two separate projects: saving lives in Poland (geographically close) and in Latvia (geographically remote). The findings suggest that while time distance can be perceived as a rationale to apply separate (lower) DRs which increase the weight of time-distant impacts in project’s NPV, outcomes distant in space should be treated as equally important to geographically close impacts, thus extending the analysis beyond national borders.

PL

Celem artykułu jest określenie czy w ocenie efektywności inwestycji uzasadnione jest odrębne traktowanie (wyrażające się doborem odmiennej wartości stopy dyskontowej) efektów bliskich oraz odległych w czasie, a także efektów dotyczących beneficjentów bliskich oraz odległych geograficznie. Analizę przeprowadzono na podstawie wyników badania ankietowego, gdzie respondentami byli obywatele Polski, pytani o zadeklarowanie liczby istnień ludzkich uratowanych w przyszłości (z opóźnieniami od 10 do 150 lat) równoważących zadaną liczbę osób uratowanych dzisiaj dla dwóch odrębnych projektów: ratującego osoby w Polsce (bliskie geograficznie respondentom) i ratującego osoby na Łotwie (odległe geograficznie). Wnioski z badań wskazują, że o ile uzasadnione jest stosowanie odrębnych (niższych) stóp dyskontowych ze względu na odległość czasową efektów, o tyle oddziaływania odległe w przestrzeni powinny być traktowane jako równie istotne jak te pojawiające się blisko pod względem geograficznym. Uzasadnia to rozszerzenie prowadzonych ocen efektywności poza granice poszczególnych krajów.

Keywords

EN

discount rate; intergenerational decisions other-regarding behaviour; contingent valuation

PL

stopa dyskontowa; decyzje międzypokoleniowe; zachowania względem innych osób; wycena warunkowa.

• Publisher: Uniwersytet Warszawski. Wydział Nauk Ekonomicznych
• Journal: Problemy Zarządzania
• Year: 2018
• Issue: 2/2018 (74)
• Pages: 96-115

Dates

published

2018-05-08

Contributors

author

Foltyn-Zarychta Monika

• Department of Investment and Real Estate, University of Economics in Katowice

References

• 1. Almansa, C. & Martínez-Paz, J.M. (2011). What weight should be assigned to future environmental impacts? A probabilistic cost benefit analysis using recent advances on discounting. Science of the Total Environment, 409, 1305–1314.
• 2. Anthoff, D., Tol, R.S.J., & Yohe, G.W. (2009). Discounting for climate change. Economics: The Open-Access, Open-Assessment E-Journal, 3(2009–24), 1–22.
• 3. Arrow, K., Cline, W., Mäler K.-G., Munasinghe, M., Squitieri, R., & Stiglitz, J. (1996). Intertemporal equity, discounting, and economic efficiency. In: J. Bruce, H. Lee, & E. Haites (Eds.), Climate change 1995 – Economic and social dimensions of climate change (pp. 127–144). Cambridge: Cambridge University Press.
• 4. Birnbacher, D. (2009). Responsibility for future generations–Scope and limits. J.M. Dołęga (Ed.). Studia Ecologiae et Bioethicae, 7, 1733–1218.
• 5. Brouwer, R. & Kind, J.M. (2005). Cost-benefit analysis and flood control policy in the Netherlands. In: R. Brouwer & D.W. Pearce (Eds.), Cost–benefit analysis and water resources management. Edward Elgar.
• 6. Brundtland, G. H. (1987). Our common future—Call for action. Environmental Conservation, 14(4), 291–294.
• 7. Carmi, N. & Kimhi, S. (2015). Further than the eye can see: Psychological distance and perception of environmental threats. Human and Ecological Risk Assessment: An International Journal, 21(8), 2239–2257.
• 8. Chapman, G.B. (2001). Time preferences for the very long time. Acta Psychologica, 108, 95–116.
• 9. Cropper, M.L., Freeman, M.C., Groom, B., & Pizer, W.A. (2014). Declining discount rates. American Economic Review: Papers & Proceedings, 104(5), 538–543.
• 10. Cropper, M., Aydede, S., & Portney, P. (1994). Preferences for life-saving programs: How the public discounts time and age. Journal of Risk and Uncertainty, 8, 243–265.
• 11. Dasgupta, P., Mäler, K.G., & Barrett, S. (1999). Intergenerational equity, social discount rates, and global warming. Discounting and Intergenerational Equity, 51, 53.
• 12. Ekeli, K.S. (2004). Environmental risks, uncertainty and intergenerational ethics. Environmental Values, 421–448.
• 13. European Commission. (2014). Guide to cost-benefit analysis of investment projects, economic appraisal tool for cohesion policy 2014–2020. Directorate-General for Regional and Urban Policy.
• 14. Fisher, A.C. (2003). Irreversibilities and catastrophic risks in climate change. In: J. Wesseler, H.-P. Weikard, & R.D. Weaver (Eds.), Risk and uncertainty in environmental and natural resource economics (pp. 9–22). Northampton: Edward Elgar.
• 15. Florio, M., Forte, S., Pancotti, C., Sirtori, E., & Vignetti, S. (2016). Exploring cost-benefit analysis of research, development and innovation infrastructures: An evaluation framework (Working Paper 01). Milan: Centre for Industrial Studies.
• 16. Foltyn-Zarychta, M. (2014). Discounting in intergenerational investment appraisal – Survey results. Business Economic Horizons, 10(1), 10–17. Retrieved from http://dx.doi.org/10.15208/beh.2014.2.
• 17. Frederick, S. (2003). Measuring intergenerational time preference: Are future lives valued less? The Journal of Risk and Uncertainty, (26), 39–53.
• 18. Frederick, S., Loewenstein, G., & O’Donoghue, T. (2002). Time discounting and time preference: A critical review. Journal of Economic Literature, 40(2), 351–401.
• 19. Freeman, M.C. & Groom, B. (2016). Discounting for environmental accounts report for the Office for National Statistics, November 2016. Retrieved from www.strategie.gouv.fr.
• 20. Gardiner, S.M. (2006). A perfect moral storm: Climate change, intergenerational ethics and the problem of moral corruption. Environmental Values, 397–413.
• 21. Garrod, G. & Willis, K.G. (1999). Economic valuation of environment: Methods and case studies. Cheltenham, Northampton: Edward Elgar.
• 22. Gollier, Ch. & Weitzman, M.L. (2009). How s hould the distant future be discounted when discount rates are uncertain? TSE Working Paper Series, 09–107.
• 23. Gosseries, A. & Meyer, L.H. (2009). Intergenerational justice. Oxford: Oxford University Press.
• 24. GUS. (2015). Rocznik Statystyczny Rzeczpospolitej Polskiej 2015. Warszawa: Główny Urząd Statystyczny.
• 25. Henderson, N. & Langford, I. (1998). Cross-disciplinary evidence for hyperbolic social discount rates. Management Science, 44(11), 1493–1500.
• 26. Hepburn, C., Koundouri, P., Panopoulou, E., & Pantelidis, T. (2009). Social discounting under uncertainty: A cross-country comparison. Journal of Environmental Economics and Management, 57(2), 140–150.
• 27. HM Treasury. (2011). The green book — Appraisal and evaluation in central government. London.
• 28. Jones, B.A. & Rachlin, H. (2009). Delay, probability, and social discounting in a public goods game. Journal of the Experimental Analysis of Behavior, 91(1), 61–73.
• 29. Jones, H., Moura, F., & Domingos, T. (2014). Transport infrastructure project evaluation using cost-benefit Analysis. Procedia – Social and Behavioral Sciences, 111, 400–409.
• 30. Kunreuther, H., Gupta, S., Bosetti, V., Cooke, R., Dutt, V., Ha-Duong, M., Held, H., Llanes-Regueiro, J., Patt, A., Shittu, E., & Weber, E. (2014). Integrated risk and uncertainty assessment of climate change response policies. In: O. Edenhofer, R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T. Zwickel, & J.C. Minx (Eds.), Climate change 2014: Mitigation of climate change. Contribution of working group III to the fifth assessment report of the intergovernmental panel on climate change. Cambridge, United Kingdom & New York, NY, USA: Cambridge University Press.
• 31. Loewenstein, G. (1996). Behavioral decision theory and business ethics: Skewed tradeoffs between self and other. In: D.M. Messick & A.E. Tenbrunsel (Eds.), Ethical issues in managerial decision making (pp. 214–246). New York: Russell Sage Foundation.
• 32. Loewenstein, G., Prelec, D. (1992). Anomalies in intertemporal choice: Evidence and an interpretation. In: G. Loewenstein & J. Elster (Eds.), Choice over time (pp. 119–145). New York: Russel Sage Foundation.
• 33. Mazur, J.E. (1987). An adjustment procedure for studying delayed reinforcement. In: M.L. Commons, J.E. Mazur, J.A. Nevin, & H. Rachlin (Eds.), The effect of delay and intervening events on reinforcement value. Hillsdale: Erlbaum.
• 34. Meerding, W.J., Bonsel, G.J., Brouwer, W.B., Stuifbergen, M.C., & Essink-Bot, M.-L. (2010). Social time preferences for health and money elicited with a choice experiment. Value in Health, 13(4), 368–374.
• 35. Mishan E.J. & Quah E. (2007). Cost benefit analysis. London & New York: Routledge.
• 36. Osiński, J., Karbowski, A., & Ostaszewski, P. (2015). Social discounting: Choice between rewards for other people. Behavioural Processes, 115, 61–63.
• 37. OXERA. (2002). A social time preference rate for use in long-term discounting. The Office of the Deputy Prime Minister, Department for Transport, and Department of the Environment, Food and Rural Affairs.
• 38. Parfit, D. (1982). Future generations: Further problems. Philosophy & Public Affairs, 113–172.
• 39. Page, E.A. (2007). Climate change, justice and future generations. Edward Elgar Publishing.
• 40. Rachlin, H. & Jones, B.A. (2008). Social discounting and delay discounting. Journal of Behavioral Decision Making, 21(1), 29–43.
• 41. Ramsey, F.P. (1928). A mathematical theory of saving. The Economic Journal, 38(152), 543–559.
• 42. Reinschmidt, K.F. (2002). Aggregate social discount rate derived from individual discount rates. Management Science, 48(2), 307–312.
• 43. Roser, D. & Seidel, C. (2016). Climate justice: An introduction. Taylor & Francis.
• 44. Schelling, T.C. (1995). Intergenerational discounting. Energy Policy, 23(4–5), 395–401.
• 45. Spash C.L. & Hanley N. (1994). Cost-benefit analysis and the environment. Aldershot: Edward Elgar.
• 46. Stern, N. (2007). The economics of climate change: The Stern review. Cambridge: Cambridge University Press.
• 47. Takahashi, T. (2007). Non-reciprocal altruism may be attributable to hyperbolicity in social discounting function. Medical Hypotheses, 68(1), 184–187.
• 48. Wade-Benzoni, K.A. (2008). Maple trees and weeping willows: The role of time, uncertainty, and affinity in intergenerational decisions. Negotiation and Conflict Management Research, 1(3), 220–245.
• 49. Wade-Benzoni, K.A., Hernandez, M., Medvec, V., & Messick, D. (2008). In fairness to future generations: The role of egocentrism, uncertainty, power, and stewardship in judgments of intergenerational allocations. Journal of Experimental Social Psychology, 44(2), 233–245.
• 50. Weitzman, M.L. (2001). Gamma discounting. The American Economic Review, 91(1), 260–271.
• 51. Weitzman M.L. (2010). Risk-adjusted gamma discounting. Journal of Environmental Economics and Management, 60, 1–13.
• 52. Yi, R., Charlton, S., Porter, C., Carter, A.E., & Bickel, W.K. (2011). Future altruism: Social discounting of delayed rewards. Behavioural Processes, 86(1), 160–163.
• 53. Zerbe, R.O. (2004). Should moral sentiments be incorporated into benefit-cost analysis? An example of long-term discounting. Policy Sciences, 37(3), 305–318.

Identifiers

ISSN

1644-9584

DOI

10.7172/1644-9584.74.5