A Proposal for a New Prescriptive Discounting Scheme: The Intergenerational Discount Rate
AbstractCost-benefit analyses require comparing costs and benefits that occur at different points in time. Doing so, however, creates conflicts between short-term considerations — a discounting scheme has to be consistent with observed behaviours — and long-term ethical issues — a discounting scheme must not favour the current generation over future ones. To overcome this conflict, the present article proposes a prescriptive consumption discounting scheme that applies different discount rates (i) for various incomes in the lifetime of a unique individual and (ii) for various incomes that affect different individuals. Practically, any income flux is first discounted to the birth date of all individuals using a discount rate with a non-zero pure preference for the present; then these individual discounted values are discounted to the present with a discount rate with no preference for the present and finally summed up. The aim of this prescriptive discount rate is to be consistent with observed individual behaviour (descriptive discount rate) without favouring current generations. Consequences are discussed and compared with the UK Green Book and the Stern Review discounting schemes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.47.
Date of creation: May 2008
Date of revision:
Discount Rate; Intergenerational Equity;
Find related papers by JEL classification:
- H4 - Public Economics - - Publicly Provided Goods
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
- William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
- Gollier, Christian, 2002. "Time Horizon and the Discount Rate," Journal of Economic Theory, Elsevier, vol. 107(2), pages 463-473, December.
- Heal, Geoffrey, 2005. "Intertemporal Welfare Economics and the Environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 21, pages 1105-1145 Elsevier.
- Harvey, Charles M., 1994. "The reasonableness of non-constant discounting," Journal of Public Economics, Elsevier, vol. 53(1), pages 31-51, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah).
If references are entirely missing, you can add them using this form.