FORESIGHT AS A SURVIVAL CHARACTERISTIC - WHEN (IF EVER) DOES THE LONGVIEW PAY

Long-range R&D and capital investment projects are normally evaluated by means of a procedure (cost-benefit analysis) that involves a choice of time preference functions. Cost-benefit analysts and many economis ts typically assume that time preference is a behavioral fact of life and that the time preference function is essentially equivalent to a c ompound interest law. In practice, they tend to choose discount rates in the range of 3% to 8% per annum in real terms. Variability in proje cted cost-benefit ratios resulting from this uncertainty is commonly d ealt with ad hoc, e.g., by simply presenting results for several diffe rent discount rates and letting the decision-maker select among them. It is argued in this study that the basic discounting methodology is f undamentally flawed and can lead to significantly inferior social choi ces, i.e., choices that would be rejected by virtually any rational ac tor to whom the choice was fairly presented. A more general methodolog y is needed. Examples from several realms, including energy policy and environmental protection, are discussed to illustrate the thesis.