To illustrate the impact of this on investment choice, consider the earlier project with an annual income stream of $  BIS central bankers’ speeches  11  Chart 6 shows the present value of those income streams under three counter-factual assumptions: rational discounting; myopic discounting – lower bound (5%); and myopic discounting – upper bound (10%). The cumulative impact is fairly dramatic. Ten-year ahead cash-flows under rational discounting are valued similarly to between six-year (lower bound) and four-year (upper bound) ahead cash-flows under myopic discounting. The long is shortened. Chart 6  Chart 7  Present value of future cash-flows  Cumulative present value of future cash-flows  Notes: The chart assumes $ is paid at the end of each year. The rational discount rate used is 1.085. Notes: The cumulative NPV of $ cash-flows rises to $ in year 9 under rational discounting. With mild myopia (x=0.95) it only passes $ at year 15. With severe myopia (x=0.90) the investor calculates that payback is not achieved. Table 7 Point in future at which residual discounted cash-flow falls below (years) 10%  1%  0.1  Rational (x =1)  29  57  85  Mild myopia (x = 0.95)  18  35  52  Strong myopia (x = 0.90)  13  25  37  Notes: The number in the table refers to the first year that a $ cash-flow falls below 10%, 1% and 0.1% of its actual value in present value terms.
Changes in the compensation instrument can also help – for example, remunerating in equity is better than in cash and remunerating in junior or convertible debt might be better than either.29  (d)  Taxation/Subsidies: Authors have suggested a variety of ways in which government could penalise short-duration holdings of securities, or incentivise longduration holdings, using tax and / or subsidy measures. These measures differ in detail, but the underlying principle is to link them to the duration of an investor’s holdings or the length or nature of a company’s investment.30  Some of these initiatives have been tried and tested in differing degrees, at different times and in different countries. They have not obviously arrested the short-termism trend. It might be time to increase the level of policy ambition if the telescope is to be corrected, the voting  26  Aspen Institute (2009), CFA (2006). 27  Duruigbo (2011). 28  Securities and Exchange Commission (2010), Aspen Institute (2009). 29  Haldane (2011). 30  Aspen Institute (op.cit. ), Poterba and Summers (1995). BIS central bankers’ speeches  13  machine socialised, the savage civilised. Public policy could help keep the plums in the pudding. Without intervention, the long could become shorter still. References Aspen Institute (2009), “Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business Management”, The Aspen Institute Business and Society Program, September 9. Barton, D (2011), “Capitalism for the Long Term”, Harvard Business Review, March.