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Intergenerational Discounting with Intragenerational Inequality in Consumption and the Environment

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  • Rintaro Yamaguchi

    (National Institute for Environmental Studies (NIES))

Abstract

It is now established that the consumption discount rate is determined by the growth of consumption multiplied by the elasticity of marginal utility, but distributive concerns are rarely reflected in the literature. Assuming a social welfare function with inequality aversion, we consider a consumption discount rate that can be decomposed into the growth effect and the intragenerational distribution effect. The framework is then extended to include population change and inequality in the environment as an amenity in a utility with constant elasticity of substitution. Numerical examples illustrate that distributional effects turn non-negligibly negative, that may reduce consumption discount rate by 1–3% for plausible parameters, once distribution is adjusted for both population and the environment.

Suggested Citation

  • Rintaro Yamaguchi, 2019. "Intergenerational Discounting with Intragenerational Inequality in Consumption and the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(4), pages 957-972, August.
    • Handle: RePEc:kap:enreec:v:73:y:2019:i:4:d:10.1007_s10640-018-0282-4
    DOI: 10.1007/s10640-018-0282-4
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    Cited by:

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    3. Yamaguchi, Rintaro & Shah, Payal, 2020. "Spatial discounting of ecosystem services," Resource and Energy Economics, Elsevier, vol. 62(C).
    4. Jasper N. Meya & Stefan Baumgärtner & Moritz A. Drupp & Martin F. Quaas, 2020. "Inequality and the Value of Public Natural Capital," CESifo Working Paper Series 8752, CESifo.

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