The Social Discount Rate: Legal and Philosophical Underpinnings

41 Pages Posted: 3 May 2022

See all articles by W. Kip Viscusi

W. Kip Viscusi

Vanderbilt University - Law School; National Bureau of Economic Research (NBER); Vanderbilt University - Department of Economics; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Strategy and Business Economics

Date Written: April 13, 2022

Abstract

Discounting of deferred impacts of government policies is a long-established practice that has been the target of substantial litigation and continued philosophical debate. Legal challenges to the social rate of discount have resulted in general acceptance of the principle of discounting at a nonzero rate for both monetary and nonmonetary impacts. Courts have displayed a general familiarity with discounting and often require transparent justification for the selection of the discount rate based on established scientific principles. The philosophical issues are more wide-ranging, and include whether nonmonetary impacts should be discounted, the use of the opportunity cost of capital or the social rate of time preference, the time frame that is pertinent for setting the discount rate, and determination of whose preferences should have standing. Intergenerational issues are particularly challenging, raising questions regarding which generation’s preferences should be recognized, the potential for dynamic inconsistencies arising from preferential discount rates, and intertemporal inequities. Benefit-cost analyses that include appropriate recognition of benefits and costs for future generations serve a constructive function in providing a mechanism for recognizing future effects on social welfare.

Keywords: Social rate of discount, Intertemporal, Intergenerational, Discounting, Benefit-cost analysis

JEL Classification: D61, K0, K32, Q58

Suggested Citation

Viscusi, W. Kip, The Social Discount Rate: Legal and Philosophical Underpinnings (April 13, 2022). Vanderbilt Law Research Paper No. 22-05, Available at SSRN: https://ssrn.com/abstract=4083202 or http://dx.doi.org/10.2139/ssrn.4083202

W. Kip Viscusi (Contact Author)

Vanderbilt University - Law School ( email )

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Nashville, TN 37203-1181
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615-322-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

National Bureau of Economic Research (NBER)

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Vanderbilt University - Department of Economics

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Nashville, TN 37235
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(615) 343-7715 (Phone)
(615) 343-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States

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