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Title: Discounting the Future: John Rawls and Derek Parfit's Critique of the Discount Rate
Author(s): VAN LIEDEKERKE, L.
Journal: Ethical Perspectives
Volume: 11    Issue: 1   Date: 2004   
Pages: 72-83
DOI: 10.2143/EP.11.1.504781

Abstract :
This article concentrates on the critique by John Rawls and Derek Parfit of the use of a discount rate in economics. In a presentation of the basic economics underlying the use of a discount rate, the inherently problematic nature of people’s preferences with respect to time are highlighted. The second part discusses the role of the discount rate in economic optimal growth models. An outline of the economic theory of optimal growth is provided, pointing out how Rawls’s analysis of justice between generations fits nicely into this economic discussion, thus explaining his interest in the discount rate. For Rawls the basic problem with the discount rate is that one variable is caught between two objectives: guaranteeing an efficient and at the same time a fair solution. Finally Derek Parfit’s analysis of the use of discount rates is examined. Parfit points out that a discount rate is often used as a crude rule of thumb which wrongly represents our reasons for discounting. The article concludes with a discussion of a study undertaken by a number of respected economists for the IPCC (International Panel on Climate Change) which exhibits all the mistakes that Parfit warns us against.

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