Discounting…On Stilts

Abstract

Jeremy Bentham famously described the concept of natural rights as “nonsense upon stilts.” This Response argues that cost-benefit analysis (CBA)—a contemporary applied version of Bentham’s utilitarianism for public policy analysis—is also nonsensical in that CBA purports to resolve questions, the answers to which have already been subsumed within the framework’s architecture. In particular, CBA subsumes vital questions of intergenerational equity through its use of an exponential discount factor to adjust future costs and benefits to a present value. This discounting procedure has the practical effect of dramatically diminishing the apparent significance of policy effects on future generations in the context of problems such as climate change, species extinction, deforestation, and aquifer depletion. Indeed, the impact of discounting future costs and benefits to a present value tends to swamp all other variables within such long-term policy analyses. Accordingly, arguments in favor of the use and selection of a discount rate for CBA calculation deserve close inspection.