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Intergenerational equity and the social discount rate

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  • Scarborough, Helen

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.

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  • Scarborough, Helen, 2011. "Intergenerational equity and the social discount rate," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(2), pages 1-14.
    • Handle: RePEc:ags:aareaj:176870
    DOI: 10.22004/ag.econ.176870
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    1. Scarborough, Helen, 2011. "Intergenerational equity and the social discount rate," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(2), pages 1-14.
    2. Nick Parr & Ross Guest, 2014. "A method for socially evaluating the effects of long-run demographic paths on living standards," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 31(11), pages 275-318.
    3. Helen Scarborough & Jeff Bennett, 2012. "Cost–Benefit Analysis and Distributional Preferences," Books, Edward Elgar Publishing, number 14376.
    4. Sahin, Oz & Stewart, Rodney A. & Giurco, Damien & Porter, Michael G., 2017. "Renewable hydropower generation as a co-benefit of balanced urban water portfolio management and flood risk mitigation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 68(P2), pages 1076-1087.
    5. Michela Faccioli & Nick Hanley & Catalina M. Torres Figuerola & Antoni Riera Font, 2015. "Do we care about sustainability? An analysis of time sensitivity of social preferences under environmental time-persistent effects," Discussion Papers in Environment and Development Economics 2015-17, University of St. Andrews, School of Geography and Sustainable Development.
    6. Jordi Honey-Rosés & Marc Menestrel & Daniel Arenas & Felix Rauschmayer & Julian Rode, 2014. "Enriching Intergenerational Decision-Making with Guided Visualization Exercises," Journal of Business Ethics, Springer, vol. 122(4), pages 675-680, July.
    7. Breton, Michèle & Keoula, Michel Yevenunye, 2014. "A great fish war model with asymmetric players," Ecological Economics, Elsevier, vol. 97(C), pages 209-223.
    8. Drupp, Moritz A. & Baumgärtner, Stefan & Meyer, Moritz & Quaas, Martin F. & von Wehrden, Henrik, 2020. "Between Ostrom and Nordhaus: The research landscape of sustainability economics," Ecological Economics, Elsevier, vol. 172(C).

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