ABSTRACT
This paper is about the logic underlying social discount rates. We argue that these rates are not ethical raw material but are derived from the more fundamental notion of justice among generations. A number of approaches to the concept of intergenerational justice are discussed, and it is argued that the most compelling formulation available to us is the one that has long been in use among economists, namely, the Ramsey-Koopmans theory. This theory advocates that investment projects having long-run effects should be subjected to the same conceptual treatment as those that affect only the near future. We show that social discount rates depend on the numeraire, and that methods of estimating them depend on the institutional setting within which social benefit-cost analysis is assumed to be undertaken. We also show that it is incorrect to advocate project-specific discount rates as a way of conserving environmental resources.
