On discounting regulatory benefits: Risk, money, and intergenerational equity

There is an elaborate debate over the practice of "discounting" regulatory benefits, such as environmental improvements and decreased risks to health and life, when those benefits will not be enjoyed until some future date. Economists tend to think that, as a general rule, such benefits should be discounted in the same way as money; many philosophers and lawyers doubt that conclusion on empirical and normative grounds. Both sides frequently neglect a simple point: if regulators are interested in how people currently value risks that will not come to fruition for a significant time, they can use people's current willingness to pay to reduce those risks. And if the question involves people's willingness to pay in the future, what is being discounted is merely money, not regulatory benefits as such. No one seeks to discount health and life as such-only the money that might be used to reduce threats to these goods. If willingness to pay to reduce risk is the appropriate metric for allocating regulatory resources, discounting merely adjusts that metric to make expenditures comparable through time. To be sure, cost-benefit analysis with discounting can produce serious problems of intergenerational equity; but those problems, involving the obligations of the present to the future, require an independent analysis. Failing to discount will often hurt, rather than help, future generations, and solutions to the problem of intergenerational equity should not be conflated with the question of whether to discount.