It is our view that, conceptually, negative discount rates may, indeed, be justified in specific long- term investments due to the points mentioned above, but also due to the inherent nature of increasing or compounding value over time, rather than diminishing. For example, investing in early years’ education for girls creates substantially more value both for girls and their society in the medium to long-term than the short-term. According to the World Bank 62 better educated women tend to be more informed about nutrition and healthcare, have fewer children, marry at a later age, and their children are usually healthier, should they choose to become mothers. They are more likely to participate in the formal labour market and earn higher incomes. A 2018 World Bank study estimated that the “limited educational opportunities for girls, and barriers to completing 12 years of education, cost countries between US$15 trillion and $30 trillion in lost lifetime productivity and earnings.” According to UNICEF, 63 the life-time earnings of educated girls dramatically increase in comparison with those who do not benefit from attending school, this contributes to higher GDP growth and declines the rates of child marriage, child mortality, and maternal mortality. Viscusi points out four issues with a zero-discount rate approach. 64 First, if the discount rate is set to zero, then the present value of even the most marginal cost becomes infinite, which means it would fail an NPV analysis assuming finite benefits. Second, there is no incentive to act now because costs and benefits are valued equally, no matter when they occur. Third, this would imply current generations would have to save excessively to create future benefits. Fourth, this would lead to a delay in policy implementation as the expectation of continual improvement in technology perpetually delays action. Therefore, while this may appear more equitable, it distorts resource allocation, is overly burdensome on the current generations and it ignores the temporal component. However, these four issues may be less problematic in the context of a negative discount rate. First, future costs would be valued even higher than the present equivalents, magnifying future environmental damages. This could be justified if the time frame is ad infinitum and tipping points are reached, which cause irreversible damage. Second, delayed inaction becomes undesirable, and the logic shifts to immediate action. Failing to address future costs today could lead to huge annual costs in the future, which we know to be true. Third, the burden on current generations becomes even more severe as investment requirements are made an urgent priority. The challenging situation of considering future generations and the associated cost for current generations would need to be borne into consideration. One solution would be, as we have seen in the market, developed nations subsidising investment for vulnerable, developing nations. Finally, the value of immediate action would rise even with the understanding that future technology would be superior. In practice, however, the application of a negative discount rates would mean that the NPV of a given investment opportunity would soar. For this reason, we believe that negative adjustments to traditional models may be more appropriate. This is discussed further in later sections. Critics have argued that any adjustment to discount rates that deviate from market rates may lead to suboptimal allocation of capital. However, Fleurbaey and Zuber 65 rebut this claim by stating that discount rates are used to “make consumption levels or monetary values comparable across time.” 66 A lower discount rate does not ignore opportunity cost, but rather prioritises long-term benefits to future generations, over short-term gains. “There is therefore no danger that adopting a lower 62 https://www.worldbank.org/en/topic/girlseducation 63 UNICEF (2023). Girls’ education. [online] UNICEF. Available at: https://www.unicef.org/education/girls-education. 64 Viscusi, W.K., 2023. The social discount rate: legal and philosophical underpinnings. Annual Review of Financial Economics , 15 (1), pp.127-145. 65 Fleurbaey, M. and Zuber, S., 2013. Inequality aversion and separability in social risk evaluation. Economic Theory , 54 , pp.675-692. 66 Fleurbaey, M. & Zuber, S., 2013. Climate policies deserve a negative discount rate, Chicago Journal of International Law: Vol. 13: No. 2, Article 14, p, 574.
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