Proportional discounting of future costs and benefits

Social benefits in the distant future receive very little importance when a public policy analysis uses a constant-discounting model with its geometric timing weights to compare future benefits with present costs. This paper defines conditions on social preferences; that imply a model having arbitrary timing weights. We then introduce a condition on preferences that restricts this general model to one in which the timing weights are linear fractional. This model is proposed as an alternative to the constant-discounting model. It accords far more importance to the distant future than does constant discounting, and like constant discounting it depends on the assessment of a single parameter.