Discounting in the Context of Multiple Objectives

Abstract

The inclusion of many objectives other than profit maximisation should raise questions about using a financially based rate to discount all costs and benefits. Psychological time preferences is best explained as a preference for consumption in the immediate time period, not for consumption earlier in time: this gives no democratic basis for discounting. Personal mortality risk is not well represented by a discount function. The debate about the entitlements of future generations on balance suggest their interests should be included in resource decisions. Because of physical and psychological changes through time, an action affecting attainment of aesthetic objectives may have monotonically declining importance: but it may also have increased, or cyclical importance. Diminishing marginal utility has widely differing applicability to technology-rich products and to those intensive in requirement of natural resources. Efficiency in allocating investment funds is only attained by discounting if revenues are wholly reinvested at a rate of return equal to the discount rate. Other, more sophisticated means should be used to select investments efficiently.