<p>The question of the appropriate discount rate for assessing projects with very long-term consequences is extremely important (although framing it in terms of &quot;the present value of exterminating the human race in 200 years&quot; may not be to everyone's taste).  The possibility that the present value of avoiding a very serious event at a distant date might be very small is certainly troubling.</p>
<p>Unfortunately this is a question on which there is no consensus among economists.  William Nordhaus, in his 2018 <a href="https://www.nobelprize.org/uploads/2018/10/nordhaus-lecture.pdf" rel="nofollow noreferrer">Nobel Prize Lecture</a> (p 455), said this:</p>
<blockquote>
<p>Controversies involving the discount rate have been central to global-warming models and policy for many years. The economic theory of discounting ... assumes great prominence ... because of the long delays between investments in abatement and  returns in averted damages.  However, notwithstanding the extensive discussions, discounting is just as contentious today as it was at the dawn of the studies in this area.</p>
</blockquote>
<p>Nordhaus went on to distinguish two main theoretical approaches to discounting: the <em>prescriptive</em> approach starting from ethical principles, and the <em>descriptive</em> approach starting from the actual market return on alternative investments, suitably adjusted for levels of risk.  Another explanation of these two approaches, and of how discounting might be adapted to the particular case of climate change, may be found in <a href="https://media.rff.org/documents/Discounting_Explainer_-_Final.pdf" rel="nofollow noreferrer">Prest (2020)</a> published by Resources for the Future.</p>

CC BY-SA 4.0
2023-05-10T19:07:46.067Z
2023-05-10T21:06:20.367Z
2023-05-10T21:06:20.367Z
Adam Bailey
<p>Exterminating the human race in 200 years ttime: Can I afford it? Can you?</p>
<p>Suppose I am writing a paper trying to asses whether some large near-term capital investment with benefits spread out over a long period of time--decades or centuries–such as a dam or a highway or a carbon capture strategy is justified in a public finance sense. What is the right strategy, or what are some good strategies,</p>
<p>When part of the benefit of an investment is measured in lives saved, and you have some (one hopes high) value of a statistical life, I am troubled by the notion that I might be able to afford paying the present value for the extermination of the human race 200 years hence out of pocket change. That seems wrong to me, but  it is also inevitable if the discount rate is equal to some private rate of return, But if not, from where might one draw an alternative discount rate?</p>

<public-goods><discount-rate>
The present value of exterminating the human race in 200 years: Can I afford it? Can you?
andrewH
# The present value of exterminating the human race in 200 years: Can I afford it? Can you?

(Asked by: username_0 on 2023-05-10)

Exterminating the human race in 200 years ttime: Can I afford it? Can you?

Suppose I am writing a paper trying to asses whether some large near-term capital investment with benefits spread out over a long period of time--decades or centuries–such as a dam or a highway or a carbon capture strategy is justified in a public finance sense. What is the right strategy, or what are some good strategies,

When part of the benefit of an investment is measured in lives saved, and you have some (one hopes high) value of a statistical life, I am troubled by the notion that I might be able to afford paying the present value for the extermination of the human race 200 years hence out of pocket change. That seems wrong to me, but it is also inevitable if the discount rate is equal to some private rate of return, But if not, from where might one draw an alternative discount rate?

**Tags:** public-goods, discount-rate


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## 1 answers

### Answer by username_1 on 2023-05-10. Score: 3

The question of the appropriate discount rate for assessing projects with very long-term consequences is extremely important (although framing it in terms of "the present value of exterminating the human race in 200 years" may not be to everyone's taste). The possibility that the present value of avoiding a very serious event at a distant date might be very small is certainly troubling.

Unfortunately this is a question on which there is no consensus among economists. William Nordhaus, in his 2018 [Nobel Prize Lecture](https://www.nobelprize.org/uploads/2018/10/nordhaus-lecture.pdf) (p 455), said this:

> Controversies involving the discount rate have been central to global-warming models and policy for many years. The economic theory of discounting ... assumes great prominence ... because of the long delays between investments in abatement and returns in averted damages. However, notwithstanding the extensive discussions, discounting is just as contentious today as it was at the dawn of the studies in this area.

Nordhaus went on to distinguish two main theoretical approaches to discounting: the *prescriptive* approach starting from ethical principles, and the *descriptive* approach starting from the actual market return on alternative investments, suitably adjusted for levels of risk. Another explanation of these two approaches, and of how discounting might be adapted to the particular case of climate change, may be found in [Prest (2020)](https://media.rff.org/documents/Discounting_Explainer_-_Final.pdf) published by Resources for the Future.


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