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The Worst-Case Scenario and Discounting the Very Long Term

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Abstract

We propose an ethical viewpoint based on the possibility of the realization of the worst-case scenario in order to reduce future generations risks in terms of discounting. Applied to the question of conservation of a renewable resource, we show that an economy, where the social planner takes into account the possibility that at an uncertain date the discount rate could change to its minimum possible value, could lead to a better conservation of the resource and modify the position of the sacrificed generations. Finally, our model suggests to apply the lowest possible discount rate immediately for long term environmental projects.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2006/V06005.pdf
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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v06005.

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Length: 13 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:mse:wpsorb:v06005

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Keywords: Discounting; environment; uncertainty; preservation of natural resources; intergenerational equity.;

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  1. Alain Ayong Le Kama, 2012. "Preservation and Endogenous Uncertain Future Preferences," Working Papers 1204, Chaire Economie du Climat.
  2. Ayong Le Kama, A. & Schubert, K., 1999. "Growth, Environment and Uncertain Future Preferences," Papiers d'Economie Mathématique et Applications 1999.52, Université Panthéon-Sorbonne (Paris 1).
  3. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
  4. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
  5. Chichilnisky, Graciela & Beltratti, Andrea & Heal, Geoffrey, 1998. "Uncertain future preferences and conservation," MPRA Paper 7912, University Library of Munich, Germany.
  6. Geoffard, Pierre-Yves, 1996. "Discounting and Optimizing: Capital Accumulation Problems as Variational Minmax Problems," Journal of Economic Theory, Elsevier, vol. 69(1), pages 53-70, April.
  7. Heal, G., 1990. "The Optimal Use Of Exhaustible Resources," Papers fb-_90-10, Columbia - Graduate School of Business.
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