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Intergenerational equity and the social discount rate

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  • Helen Scarborough

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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Suggested Citation

  • Helen Scarborough, 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 145-158, April.
  • Handle: RePEc:bla:ajarec:v:55:y:2011:i:2:p:145-158
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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), June.
    2. Kenneth Arrow & Partha Dasgupta & Lawrence Goulder & Gretchen Daily & Paul Ehrlich & Geoffrey Heal & Simon Levin & Karl-Göran Mäler & Stephen Schneider & David Starrett & Brian Walker, 2004. "Are We Consuming Too Much?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 147-172, Summer.
    3. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
    4. W. Viscusi & Joel Huber & Jason Bell, 2008. "Estimating discount rates for environmental quality from utility-based choice experiments," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 199-220, December.
    5. 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.
    6. Krinsky, Itzhak & Robb, A Leslie, 1986. "On Approximating the Statistical Properties of Elasticities," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 715-719, November.
    7. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    8. 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.
    9. Schelling, Thomas C, 1995. "Intergenerational discounting," Energy Policy, Elsevier, vol. 23(4-5), pages 395-401.
    10. 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.
    11. Rick Baker & Andrew Barker & Alan Johnston & Michael Kohlhaas, 2008. "The Stern Review: an assessment of its methodology," Staff Working Papers 0801, Productivity Commission, Government of Australia.
    12. Broome, John, 2006. "Weighing Lives," OUP Catalogue, Oxford University Press, number 9780199297702.
    13. Scarborough, Helen & Bennett, Jeff, 2008. "Estimating intergenerational distribution preferences," Ecological Economics, Elsevier, vol. 66(4), pages 575-583, July.
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    Cited by:

    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), June.
    2. Breton, Michèle & Keoula, Michel Yevenunye, 2014. "A great fish war model with asymmetric players," Ecological Economics, Elsevier, vol. 97(C), pages 209-223.
    3. Helen Scarborough & Jeff Bennett, 2012. "Cost–Benefit Analysis and Distributional Preferences," Books, Edward Elgar Publishing, number 14376, April.
    4. Michela Faccioli & Nicholas 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," DEA Working Papers 71, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    5. 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.
    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. 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, July.

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