An Intergenerational Issue: The Equity Issues due to Public-Private Partnerships. The Critical Aspect of the Social Discount Rate Choice for Future Generations

TL;DR

This paper examines how the choice of Social Discount Rate influences intergenerational equity in Public-Private Partnerships, highlighting ethical considerations and policy implications for future debt management.

Contribution

It provides an analytical framework linking SDR choices with ethical perspectives and policy outcomes in PPP projects, emphasizing the need for ethical consistency.

Findings

Policymakers can manipulate SDR to favor PPPs over traditional financing.

Current UK SDR policies are between utilitarian and Rawlsian perspectives.

No evidence of sophisticated systems to manage off-balance sheet debts in the UK.

Abstract

This paper investigates the impact of Social Discount Rate (SDR) choice on intergenerational equity issues caused by Public-Private Partnerships (PPPs) projects. Indeed, more PPPs mean more debt being accumulated for future generations leading to a fiscal deficit crisis. The paper draws on how the SDR level taken today distributes societies on the Social Welfare Function (SWF). This is done by answering two sub-questions: (i) What is the risk of PPPs debts being off-balance sheet? (ii) How do public policies, based on the envisaged SDR, position society within different ethical perspectives? The answers are obtained from a discussion of the different SDRs (applied in the UK for examples) according to the merits of the pertinent ethical theories, namely libertarian, egalitarian, utilitarian and Rawlsian. We find that public policymakers can manipulate the SDR to make PPPs looking like a better option than the traditional financing form. However, this antagonises the Value for Money principle. We also point out that public policy is not harmonised with ethical theories. We find that at present (in the UK), the SDR is somewhere between weighted utilitarian and Rawlsian societies in the trade-off curve. Alas, our study finds no evidence that the (UK) government is using a sophisticated system to keep pace with the accumulated off-balance sheet debts. Thus, the exact prediction of the final state is hardly made because of the uncertainty factor. We conclude that our study hopefully provides a good analytical framework for policymakers in order to draw on the merits of ethical theories before initiating public policies like PPPs.