IDEAS home Printed from https://ideas.repec.org/p/fem/femwpa/2008.47.html
   My bibliography  Save this paper

A Proposal for a New Prescriptive Discounting Scheme: The Intergenerational Discount Rate

Author

Listed:
  • Stéphane Hallegatte

    (CIRED)

Abstract

Cost-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.

Suggested Citation

  • Stéphane Hallegatte, 2008. "A Proposal for a New Prescriptive Discounting Scheme: The Intergenerational Discount Rate," Working Papers 2008.47, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2008.47
    as

    Download full text from publisher

    File URL: https://feem-media.s3.eu-central-1.amazonaws.com/wp-content/uploads/NDL2008-047.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801, September.
    2. Gollier, Christian, 2002. "Time Horizon and the Discount Rate," Journal of Economic Theory, Elsevier, vol. 107(2), pages 463-473, December.
    3. 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.
    4. 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.
    5. Harvey, Charles M., 1994. "The reasonableness of non-constant discounting," Journal of Public Economics, Elsevier, vol. 53(1), pages 31-51, January.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:bla:opecrv:v:33:y:2009:i:1:p:1-22 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fujii, Tomoki & Karp, Larry, 2008. "Numerical analysis of non-constant pure rate of time preference: A model of climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 83-101, July.
    2. Min Gong & David Krantz & Elke Weber, 2014. "Why Chinese discount future financial and environmental gains but not losses more than Americans," Journal of Risk and Uncertainty, Springer, vol. 49(2), pages 103-124, October.
    3. Geoffrey Heal, 2008. "Climate Economics: A Meta-Review and Some Suggestions," NBER Working Papers 13927, National Bureau of Economic Research, Inc.
    4. Holger Strulik, 2021. "Hyperbolic discounting and the time‐consistent solution of three canonical environmental problems," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 462-486, June.
    5. Cropper, Maureen, 2012. "How Should Benefits and Costs Be Discounted in an Intergenerational Context?," RFF Working Paper Series dp-12-42, Resources for the Future.
    6. repec:hal:pseose:insu-01105358 is not listed on IDEAS
    7. Kollenberg, Sascha & Taschini, Luca, 2016. "Emissions trading systems with cap adjustments," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 20-36.
    8. Hepburn, Cameron & Koundouri, Phoebe & Panopoulou, Ekaterini & Pantelidis, Theologos, 2009. "Social discounting under uncertainty: A cross-country comparison," Journal of Environmental Economics and Management, Elsevier, vol. 57(2), pages 140-150, March.
    9. Geoffrey Heal & Antony Millner, 2013. "Discounting under Disagreement," NBER Working Papers 18999, National Bureau of Economic Research, Inc.
    10. Cameron Hepburn & Greer Gosnell, 2014. "Evaluating impacts in the distant future: cost–benefit analysis, discounting and the alternatives," Chapters, in: Giles Atkinson & Simon Dietz & Eric Neumayer & Matthew Agarwala (ed.), Handbook of Sustainable Development, chapter 9, pages 140-159, Edward Elgar Publishing.
    11. Jouini, Elyès & Marin, Jean-Michel & Napp, Clotilde, 2010. "Discounting and divergence of opinion," Journal of Economic Theory, Elsevier, vol. 145(2), pages 830-859, March.
    12. Mouez Fodha, 2015. "Nuclear waste storage and environmental intergenerational externalities," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 18(1/2), pages 94-114.
    13. Louis Kaplow & David Weisbach, 2011. "Discount rates, social judgments, individuals’ risk preferences, and uncertainty," Journal of Risk and Uncertainty, Springer, vol. 42(2), pages 125-143, April.
    14. Karp, Larry & Tsur, Yacov, 2011. "Time perspective and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 1-14, July.
    15. Nævdal, Eric & Vislie, Jon, 2013. "Resource Depletion and Capital Accumulation under Catastrophic Risk: Policy Actions against Stochastic Thresholds and Stock Pollution," Memorandum 24/2013, Oslo University, Department of Economics.
    16. Birol, Ekin & Koundouri, Phoebe & Kountouris, Yiannis, 2010. "Assessing the economic viability of alternative water resources in water-scarce regions: Combining economic valuation, cost-benefit analysis and discounting," Ecological Economics, Elsevier, vol. 69(4), pages 839-847, February.
    17. Nævdal, Erik & Vislie, Jon, 2012. "Resource Depletion and Capital Accumulation under Catastrophic Risk: The Role of Stochastic Thresholds and Stock Pollution," Memorandum 24/2012, Oslo University, Department of Economics.
    18. Christian Gollier & Phoebe Koundouri & Theologos Pantelidis, 2008. "Declining discount rates: Economic justifications and implications for long-run policy [‘Regime switches in interest rates’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 23(56), pages 758-795.
    19. Eveson, Simon P. & Thijssen, Jacco J.J., 2016. "Pareto optimality and existence of quasi-equilibrium in exchange economies with an indefinite future," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 138-152.
    20. Echazu Luciana & Nocetti Diego & Smith William T., 2012. "A New Look into the Determinants of the Ecological Discount Rate: Disentangling Social Preferences," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-44, April.
    21. Moritz Drupp & Mark Freeman & Ben Groom & Frikk Nesje, 2015. "Discounting disentangled: an expert survey on the determinants of the long-term social discount rate," GRI Working Papers 196a, Grantham Research Institute on Climate Change and the Environment.

    More about this item

    Keywords

    Discount Rate; Intergenerational Equity;

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2008.47. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alberto Prina Cerai (email available below). General contact details of provider: https://edirc.repec.org/data/feemmit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.