The Sustainability Index as an Alternative to Ramsey‘s Formula for Long-Term Project Decisions

Karmen Marguč

The Sustainability Index as an Alternative to Ramsey‘s Formula for Long-Term Project Decisions

Key words: social discount rate, sustainable development, Ramsey‘s formula

Abstract:
The choice between alternative long-term global measures is generally based on the calculation of the neto present value, which includes also social discount rate. The purpose of this research is to critically evaluate determining of parameters for calculating the social discount rate according to the Ramsey formula and to explore the possibility of introducing an objective way that takes into account aspects of sustainability. Theoretical methods are used to define the problem of subjectivity, absence of criticism in determining the social discount rate, and the problem of data reduction in empirical research. A more objective and complex way of choosing between projects based on hierarchical ecological models is presented, taking into account the potential state of sustainability of the future generations.

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