Ethics essay 4

Ethics essay 4 - ECON3022 Emma King What light, if any, do...

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ECON3022 Emma King What light, if any, do theories of intergenerational justice throw on the choice of the discount rate for projects that have long-term implications? To answer the question of this essay I will first describe what the discount rate is and why there is one. I will then talk through the different intergenerational justice theories and how they may throw light on the choice of the discount rate for projects that have long term implications. People discount for the future at the interest rate because there is an opportunity cost of them sacrificing consumption. Why is there an interest rate? People need a reward to lend money because there is a risk. If you were to lend to a bank they may become bankrupt before they are due to pay you the money back. If you were saving there is also the risk that you might not be around to use the savings. Another reason people need a reward for lending is because they have a preference for things now. They are impatient to have consumption. Finally there is a diminishing marginal utility for consumption in the future because people expect to be wealthier. They expect the money they are saving today to be worth less to them in the future. Public authorities use a discount rate to ration funds between projects. They use the interest rate to make the projects comparable. Social risk is not the same as private risk, it is in fact higher. This is why a social rate of discount may be needed. The reason the social rate is different to the market rate
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Ethics essay 4 - ECON3022 Emma King What light, if any, do...

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