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Evaluating Long-Lived Projects: The Issue Of Inter-Generational Equity

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  • Young, Ralph
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    Abstract

    The role of the discount rate in benefit-cost analysis is reviewed, and its impact considered. A positive rate clearly 'tilts the balance overwhelmingly against generations in the distant future'. In this context, the issue of inter-generational equity is discussed, and it is concluded that although a positive rate representing social time preference or opportunity cost is appropriate when considering questions of economic efficiency, this is not the case when equity questions are being examined. In the case of irreversible change, an extreme example of inter-generational inequity, there may be no alternative to a constrained optimisation approach, where the constraint is determined by an ethical decision. A range of approaches for analysing the issue of inter-generational equity are canvassed and it is concluded that efficiency and equity questions need to be dealt with separately. If the analysis of the options on each issue are set out clearly, then policy makers will be better placed to make an informed and responsible decision.

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    File URL: http://purl.umn.edu/22385
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    Bibliographic Info

    Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural Economics.

    Volume (Year): 36 (1992)
    Issue (Month): 03 (December)
    Pages:

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    Handle: RePEc:ags:ajaeau:22385

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    Keywords: Institutional and Behavioral Economics;

    References

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    1. Krautkraemer, Jeffrey A, 1985. "Optimal Growth, Resource Amenities, and the Preservation of Natural Environments," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 153-70, January.
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    4. Sjaastad, Larry A & Wisecarver, Daniel L, 1977. "The Social Cost of Public Finance," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 513-47, June.
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    7. repec:ltr:wpaper:1991.13 is not listed on IDEAS
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    9. Solow, Robert M, 1986. " On the Intergenerational Allocation of Natural Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 141-49.
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    13. Norgaard, Richard B., 1989. "The case for methodological pluralism," Ecological Economics, Elsevier, vol. 1(1), pages 37-57, February.
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    15. Christensen, Paul P., 1989. "Historical roots for ecological economics -- Biophysical versus allocative approaches," Ecological Economics, Elsevier, vol. 1(1), pages 17-36, February.
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    17. Lind, Robert C., 1990. "Reassessing the government's discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S8-S28, March.
    18. Harry R Clarke, 1991. "Risk, Uncertainty and Irreversibility Implications for Sustainable Development," Working Papers 1991.13, School of Economics, La Trobe University.
    19. Kirby, Michael G. & Blyth, Michael J., 1987. "Economic Aspects Of Land Degradation In Australia," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 31(02), August.
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