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The Worst-Case Scenario and Discounting the Very Long Term

  • El Hadji Fall

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

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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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00084074.

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Date of creation: Jan 2006
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Publication status: Published in Cahiers de la Maison des Sciences Economiques 2006.05 - ISSN 1624-0340. 2006
Handle: RePEc:hal:cesptp:halshs-00084074
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00084074
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  1. Alain Ayong Le Kama, 2012. "Preservation and Endogenous Uncertain Future Preferences," Working Papers 1204, Chaire Economie du Climat.
  2. Heal, G., 1990. "The Optimal Use Of Exhaustible Resources," Papers fb-_90-10, Columbia - Graduate School of Business.
  3. Chichilnisky, Graciela & Beltratti, Andrea & Heal, Geoffrey, 1998. "Uncertain future preferences and conservation," MPRA Paper 7912, University Library of Munich, Germany.
  4. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
  5. Alain Le Kama & Katheline Schubert, 2004. "Growth, Environment and Uncertain Future Preferences," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(1), pages 31-53, May.
  6. 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.
  7. 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.
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