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Intergenerational equity and the social discount rate

Intergenerational equity and the social discount rate Recent modelling of the costs and benefits of climate change has renewed debate regarding assumptions for the social discount rate in analysing the impacts of environmental change. Previous literature suggests two key factors influence estimates of the social discount rate: the rate of pure time preference and the elasticity of marginal utility of future consumption. These components of the social discount rate reinforce the linkages between the choice of social discount rate and intergenerational distribution. This paper addresses the question of the relationship between intergenerational equity and the social discount rate and promotes the application of intergenerational distributional weights as a means of incorporating intergenerational equity preferences in policy analysis. Intergenerational equity‐adjusted social discount rates are derived as a means of decomposing the intergenerational equity aspect of the social discount rate. The work has significant policy implications for projects with long time frames given the sensitivity of Cost Benefit Analysis outcomes to decisions regarding the social discount rate. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Australian Journal of Agricultural Resource Economics Wiley

Intergenerational equity and the social discount rate

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Publisher
Wiley
Copyright
Copyright © 2011 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1364-985X
eISSN
1467-8489
DOI
10.1111/j.1467-8489.2011.00532.x
Publisher site
See Article on Publisher Site

Abstract

Recent modelling of the costs and benefits of climate change has renewed debate regarding assumptions for the social discount rate in analysing the impacts of environmental change. Previous literature suggests two key factors influence estimates of the social discount rate: the rate of pure time preference and the elasticity of marginal utility of future consumption. These components of the social discount rate reinforce the linkages between the choice of social discount rate and intergenerational distribution. This paper addresses the question of the relationship between intergenerational equity and the social discount rate and promotes the application of intergenerational distributional weights as a means of incorporating intergenerational equity preferences in policy analysis. Intergenerational equity‐adjusted social discount rates are derived as a means of decomposing the intergenerational equity aspect of the social discount rate. The work has significant policy implications for projects with long time frames given the sensitivity of Cost Benefit Analysis outcomes to decisions regarding the social discount rate.

Journal

The Australian Journal of Agricultural Resource EconomicsWiley

Published: Apr 1, 2011

Keywords: ;

References