Social Discount Rate in Balance Between Intergenerational Solidarity and Economic Feasibility

Abstract

Economic evaluation of public investments implies the responsibility of choosing how to use public resources to achieve maximum social well-being. Does pursuing the goal of public economic efficiency always guarantee intergenerational solidarity? And, conversely, can the pursuit of broad solidarity damage the community in terms of sub-optimal use of resources? The SocialDiscount Rate plays a strategic role in the evaluation of public investments, as it may influence, or even overturn, the resulting value of various indicators of economic feasibility, such as Net Present Value. Moreover, the choice of the Social Discount Rate reveals whether and to what extent political institutions make public investments in accordance with the fair use of natural resources and the preservation of cultural heritage that will be left to future generations. This paper aims to highlight the effect that the political decision to set a particular Social Discount Rate would have on the economic feasibility of investments in energy retrofitting of public buildings located in contexts subject to historical or landscape constraints. A case study is analyzed in terms of Net Present Values assessed according to different Social Discount Rate that are set in a few selected Italian regions and European countries. As the results are divergent, it would be advisable to relaunch the scientific debate on the Social discount rate in Italy and the responsibilities of administrative and political bodies in translating theoretical approaches into clear and consensual protocols and rules for setting the Social Discount Rate to eliminate discretionary power that creates social and territorial inequalities.