ABSTRACT
Times were different in 1970, when ‘Uncertainty and the Evaluation of Public Investment Decisions’ was published (Arrow and Lind, 1970). Environmentalism was in the air, but it hardly was mainstream yet. The debate about discounting distant-future prospects had scarcely begun. Most economists were clear about the motivation for discounting: it was all about efficiency in capital markets. From this standpoint, it was self-evident that a government seeking to invest on behalf of the public has an affirmative duty to ensure that the investment will generate a market rate of return (adjusted appropriately). For economists sympathetic to the ‘small government’ position, in which capital is thought to reside in private hands in the right and proper scheme of things, the list of plausible adjustments was short – there was obvious need to adjust for inflation but other proposed adjustments were viewed skeptically. Those inclined to see government’s duty in terms less of mimicking the market and more of restraining its excesses were willing to consider additional adjustments for failures in capital markets.
