TY - CHAP
T1 - The Contradiction between the Time Value of Money and Sustainability
AU - Baur, Dirk
AU - Lagoarde-Segot, T.
PY - 2016
Y1 - 2016
N2 - Copyright © 2017 by Emerald Group Publishing Limited.Purpose - The "time value of money principle," a building block of finance theory and practice, states that money today is worth more than money in the future. In this chapter, we argue that this principle is not consistent with intergenerational equity or sustainability. Methodology/approach - We demonstrate that standard capital budgeting negatively affects sustainability by presenting two numerical examples and by discussing the role of financial markets in the time value of money and the discount rate. We then discuss Silvio Gesell's (1862-1930) concept of Freigeld as a possible alternative framework for a "socially optimal" discount rate. Findings - We show that the time value of money principle, as employed in standard capital budgeting techniques, tends to reject sustainable projects (that only break even in the long run) and accept unsustainable projects (that break even in the short term but entail significant longterm negative externalities). We find that fiat currencies offer interesting perspectives in the context of sustainability. Research implications - We show that money, interest rates and investment valuation techniques are not merely technical tools, but have important institutional, social, and political attributes. Taken together with current global demands for sustainability, this observation could justify a new research agenda seeking to redefine current capital budgeting techniques. Practical/social implications - We stress that the "time value of money principle" should not be viewed as a technical tool, but rather, as a social and political construct. We argue that the principle needs to be reconsidered given the current global sustainability crisis. Originality/value - The economics literature considers that externalities indicate a market failure, to which policy makers should respond by introducing optimal tax incentives and regulation. At the same time, the management studies literature has proposed a set of initiatives to align co
AB - Copyright © 2017 by Emerald Group Publishing Limited.Purpose - The "time value of money principle," a building block of finance theory and practice, states that money today is worth more than money in the future. In this chapter, we argue that this principle is not consistent with intergenerational equity or sustainability. Methodology/approach - We demonstrate that standard capital budgeting negatively affects sustainability by presenting two numerical examples and by discussing the role of financial markets in the time value of money and the discount rate. We then discuss Silvio Gesell's (1862-1930) concept of Freigeld as a possible alternative framework for a "socially optimal" discount rate. Findings - We show that the time value of money principle, as employed in standard capital budgeting techniques, tends to reject sustainable projects (that only break even in the long run) and accept unsustainable projects (that break even in the short term but entail significant longterm negative externalities). We find that fiat currencies offer interesting perspectives in the context of sustainability. Research implications - We show that money, interest rates and investment valuation techniques are not merely technical tools, but have important institutional, social, and political attributes. Taken together with current global demands for sustainability, this observation could justify a new research agenda seeking to redefine current capital budgeting techniques. Practical/social implications - We stress that the "time value of money principle" should not be viewed as a technical tool, but rather, as a social and political construct. We argue that the principle needs to be reconsidered given the current global sustainability crisis. Originality/value - The economics literature considers that externalities indicate a market failure, to which policy makers should respond by introducing optimal tax incentives and regulation. At the same time, the management studies literature has proposed a set of initiatives to align co
UR - http://www.emeraldinsight.com/doi/book/10.1108/S2043-9059201711
U2 - 10.1108/S2043-905920160000011004
DO - 10.1108/S2043-905920160000011004
M3 - Chapter
SN - 9781786355102
VL - 11
T3 - Critical Studies on Corporate Responsibility, Governance and Sustainability
SP - 75
EP - 92
BT - Finance and Economy for Society
A2 - Alijani, Sharam
A2 - Karyotis, Catherine
PB - Emerald Group Publishing Limited
CY - Bingley, UK
ER -
