The Social Rate of Discount

  • Ajit K. Dasgupta
  • D. W. Pearce
Chapter

Abstract

Investment in capital projects involves the sacrifice of present benefits in favour of future benefits. In this chapter we shall limit the definition of benefits to consumption goods, but, unless otherwise stated, the arguments can be restated in terms of general benefits. The sacrifice of present consumption would not be worth while unless the gains in future consumption are greater. Essentially, then, an investment is worth while if the future gains in consumption are regarded as being in excess of the current sacrifice of consumption, viewed from the point of view of the chosen social welfare function. It is important to define the meaning of ‘future gains in consumption’ carefully. These gains will be distributed over the lifetime of the project. One simple procedure would be to add up all the consumption benefits regardless of when they occur. But such a procedure would ignore the existence of ‘social time preference’ — a preference which society supposedly exhibits for present benefits over future benefits.

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Copyright information

© Ajit K. Dasgupta and D. W. Pearce 1972

Authors and Affiliations

  • Ajit K. Dasgupta
    • 1
  • D. W. Pearce
    • 2
  1. 1.Sir George Williams UniversityMontrealCanada
  2. 2.University of SouthamptonUK

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