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Ethical Aspects of Intertemporal Discounting and the Social Discount Rate

Márta Somogyvári ()
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Márta Somogyvári: University of Pécs

Financial and Economic Review, 2018, vol. 17, issue 3, 109-132

Abstract: The paper examines the ethical aspects of discounting during the preparation of intertemporal decisions, and the influence of this on the cost-benefit analysis of community investments. It focuses on the economic philosophy and ethical considerations that underlie discounting as a daily financial activity. The author attempts to resolve the apparent logical contradiction between the cardinal and discounted utilitarian ethical approaches. By analysing the preconditions related to the definition of the values of the parameters included in the Ramsey formula, it is presented that neither the social discount rate applied in the case of intertemporal investments nor the current practice of establishing the market discount rate used for investments representing a potential burden on the environment is suitable for the assessment of the long-term community investments and private investments burdening the environment.

Keywords: discounting; social discount rate; Ramsey formula; utilitarianism; economic ethics (search for similar items in EconPapers)
JEL-codes: A13 D63 H43 Q58 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:mnb:finrev:v:17:y:2018:i:3:p:109-132