Debate on the social rate of long term discount: state of art

Abstract

The purpose of this article is to carry out an analysis of theoretical debate that has been raised around the determination of the social rate of discount used inthe projects appraisal with long term environmental impacts. Thus, it describes the evolution of the debateand the concept of the discount and its role inthe models of economic growth and the maximization of the social welfare are reviewed. Also, this paper analyzes diverse critics raised to the traditional approach of determination of the discount used inthe cost-benefit analysis. Subsequently, three mainalternative proposals for the determination of thelong term discount rate are studied. From the empirical evidence, raised by diverse studies that favor the use of low discount rates, it is concluded that the social rate of discount used to evaluate projects with impact in the long term should be a declining rate inthe time and not a constant rate of discount.