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Description, Prescription and the Choice of Discount Rates

19 Pages Posted: 11 Jul 2016  

Seth D. Baum

Global Catastrophic Risk Institute

Date Written: November 15, 2009

Abstract

The choice of discount rates is a key issue in the analysis of long-term societal issues, in particular environmental issues such as climate change. Approaches to choosing discount rates are generally placed into two categories: the descriptive approach and the prescriptive approach. The descriptive approach is often justified on grounds that it uses a description of how society discounts instead of having analysts impose their own discounting views on society. This paper analyzes the common forms of the descriptive and prescriptive approaches and finds that, in contrast with customary thinking, both forms are equally descriptive and prescriptive. The prescriptions concern who has standing (i.e. who is included) in society, how the views of these individuals are measured, and how the measurements are aggregated. Such prescriptions are necessary to choose from among the many possible descriptions of how society discounts. The descriptions are the measurements made given a choice of measurement technique. Thus, the labels "descriptive approach" and "prescriptive approach" are deeply misleading, as analysts cannot avoid imposing their own views on society.

Keywords: discounting, ethics

Suggested Citation

Baum, Seth D., Description, Prescription and the Choice of Discount Rates (November 15, 2009). Ecological Economics, vol. 69, no. 1, 2009, pp. 197-205. Available at SSRN: https://ssrn.com/abstract=2807404

Seth D. Baum (Contact Author)

Global Catastrophic Risk Institute ( email )

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