Export file:

Format

  • RIS(for EndNote,Reference Manager,ProCite)
  • BibTex
  • Text

Content

  • Citation Only
  • Citation and Abstract

Cost-Benefit analysis in the context of long horizon projects—a need for a social and holistic approach

Department of Electrical & Computer Engineering, College of Engineering, Sultan Qaboos University, Al Khod-123, Oman

Special Issues: Finance and Sustainability

Discounting has always been a controversial subject among economists and philosophers yet discounting practice remained an essential element of any public policy. The purpose of this paper is to argue against using the practice of discounting in Cost-Benefit analysis for large engineering/public projects particularly aimed at mitigating the effects of global warming, as it creates bias against the future generation. Using systems thinking approach the paper has counter argued against all the three arguments, used to justify discounting, i.e., pure time preference, the opportunity cost of capital, and risk. The paper has shown intuitively that both the consumption- and the investment-based rationales used to justify discounting are in conflict when we take the holistic approach to the environment. The paper clearly is on a topic of great significance for environmental economists and environmental policy specialists. The perspective taken in the paper is a thought-provoking one with the relevance of “systems thinking” for the discounting debate.
  Figure/Table
  Supplementary
  Article Metrics

References

1. Ahmad M (1992) Towards interest-free banking, Adam Publishers.

2. Arrow K, Cropper M, Gollier C, et al. (2013) Determining benefits and costs for future generations. Sci 341: 349–350.    

3. Attema AE, Brouwer WB, Claxton K (2018) Discounting in economic evaluations. Pharmacoeconomics 36: 745–758.    

4. Burke M, Davis WM, Diffenbaugh NS (2018) Large potential reduction in economic damages under UN mitigation targets. Nature 557: 549.    

5 .Capra F (1983) The turning point: Science, society, and the rising cultur, Bantam.

6. Cline WR (2004) Meeting the challenge of global warming, in: Lomborg, B. (Ed.), Global Crises, Global solutions, Cambridge University Press, Cambridge.

7. Cowen T, Parfit D (1992) Against the social discount rate, in: Laslett, P., Fishkin, J.S. (Eds.), Justice between age groups and generations, Yale University Press, New Haven, CT, 144–161.

8. Dasgupta AK (1972) Cost-benefit analysis: theory and practice, Macmillan International Higher Education.

9. Dear J, Dear P, Jones T (2013) Life and debt: global studies of debt and resistance. Jubilee Debt Campaign UK.

10. Feng T, Ke S (2018) Social Discounting and Intergenerational Pareto. Econometrica 86: 1537–1567.    

11. Goodin R (1986) Protecting the Vulnerable, University of Chicago Press, Chicago.

12. Greco T (2009) The end of money and the future of civilization, Chelsea Green publishing company, Vermont.

13. Guo J, Hepburn CJ, Tol RS, et al. (2006) Discounting and the social cost of carbon: a closer look at uncertainty. Environ Sci Policy 9: 205–216.    

14. Hamed A (2013) The morals of money-lending.

15. Harrison M (2010) Valuing the Future: the social discount rate in cost-benefit analysis. Available at SSRN 1599963.

16. Heal GM, Millner A (2014) Agreeing to disagree on climate policy. Proc National Acad Sci 111: 3695–3698.    

17. Heard BP (2018) Clean. Reliable. Affordable. The role of nuclear technology in meeting the challenge of low greenhouse gas electricity supply in the 21st century.

18. Holling C (1996) What barriers? What bridges? , In: Gunderson L, Holling C, Light S (Ed.), Barriers and bridges to the renewal of ecosystems and institutions, Columbia Univ. Press, New York.

19. Holling CS (2001) Understanding the complexity of economic, ecological, and social systems. Ecosyst 4: 390–405.    

20. Howarth RB (1996) Discount rates and sustainable development. Ecol model 92: 263–270.    

21. Jouini E, Marin JM, Napp C (2010) Discounting and divergence of opinion. J Econ Theory 145: 830–859.    

22. Kula E (1997) Time Discounting and Future Generations: The Harmful Effects of an Untrue Economic Theory, Quorum Books, London.

23. Leonard A (2010) Story of stuff.

24. Malik AS (2011) Justice to nature and to the disadvantaged. World Futures 67: 106–114.    

25. McLaughlin C, Davidson G (1994) Spiritual Politics: Changing the World from the Inside Out, Random House Inc., New York.

26. Nordhaus W (2007) Critical assumptions in the Stern Review on climate change. Sci 317: 201–202.    

27. Parfit D (1983) Energy policy and the further future: the identity problem, in: MacLean, D., Brown, P. (Eds.), Energy and the Future. Rowman and Littlefield, Totowa, NJ, 166–179.

28. Pearce D, Barbier E, Makandya A (1990) Sustainable Development: Economics and Environment in the Third World, Earthscan Publications Ltd, London.

29. Perkins J (2011) Hoodwinked: An economic hit man reveals why the global economy imploded-and how to fix it, Crown Publishing Group, New York.

30. Pigou AC (1932) The Economics of Welfare, Macmillan, London.

31. Price C (2018) Declining discount rate and the social cost of carbon: Forestry consequences. J Forest Econ 31: 39–45.    

32. Ramsey FP (1928) A mathematical theory of saving. Econ J 38: 543–559.    

33. Shah A (2010) Introduction-Linking the Environment and Poverty.

34. Siddiqi MN (2001) Economics: An Islamic Approach. Institute of Policy Studies.

35. Stern N (2007) The Economics of Climate Change: The Stern Review, Cambridge University Press, Cambridge.

36. Stiglitz J (1986) Economics of the Public Sector. Norton, New York.

37. Strotz RH (1955) Myopia and inconsistency in dynamic utility maximization. Review Econ Stud 23: 165–180.    

38. Turner RK (2007) Limits to CBA in UK and European environmental policy: retrospects and future prospects. Environ Resour Econ 37: 253–269.    

39. Voinov A, Farley J (2007) Reconciling sustainability, systems theory and discounting. Ecol Econ 63: 104–113.    

40. WCED (1987) World Commission on Environment and Development, Our Common Future (The 'Brundtland Report'). Oxford University Press, Oxford.

41. Weitzman ML (2007) A review of the Stern Review on the economics of climate change. J Econ Lit 45: 703–724.    

© 2019 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution Licese (http://creativecommons.org/licenses/by/4.0)

Download full text in PDF

Export Citation

Article outline

Show full outline
Copyright © AIMS Press All Rights Reserved