IDEAS home Printed from https://ideas.repec.org/p/hhs/osloec/2015_015.html
   My bibliography  Save this paper

The Ethics of Intergenerational Risk

Author

Listed:
  • Piacquadio, Paolo G.

    (Dept. of Economics, University of Oslo)

Abstract

The paper reexamines the ethics of intergenerational risk. When risk resolves gradually, earlier decisions cannot depend on the realization of later shocks and, consequently, some inequalities across generations are inevitable. To account for these inequalities, risky intergenerational situations are assessed in relation to an endogenous reference. The reference is specific to each intergenerational resource distribution problem and captures information about the technology, the intensity of risk, and the way risk resolves over time. The characterized class of reference-dependent utilitarian criteria avoids serious drawbacks of existing alternatives, such as discounted expected utilitarianism. Specifically, the welfare criteria: (i) disentangle aversion to intergenerational inequality from aversion to risk; (ii) value an early resolution of risk; and (iii) discount the future based on the intensity and the time-resolution of risk.

Suggested Citation

  • Piacquadio, Paolo G., 2015. "The Ethics of Intergenerational Risk," Memorandum 15/2015, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2015_015
    as

    Download full text from publisher

    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2015/memo-15-2015.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Asheim, Geir B. & Zuber, Stéphane, 2016. "Evaluating intergenerational risks," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 104-117.
    2. Geir B. Asheim, 2010. "Intergenerational Equity," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 197-222, September.
    3. Kevin W. S. Roberts, 1980. "Interpersonal Comparability and Social Choice Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(2), pages 421-439.
    4. R. A. Pollak, 1968. "Consistent Planning," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(2), pages 201-208.
    5. Blackorby,Charles & Bossert,Walter & Donaldson,David J., 2005. "Population Issues in Social Choice Theory, Welfare Economics, and Ethics," Cambridge Books, Cambridge University Press, number 9780521532587.
    6. W. Michael Hanemann, 1989. "Welfare Evaluations in Contingent Valuation Experiments with Discrete Response Data: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(4), pages 1057-1061.
    7. Thomson, William, 2011. "Chapter Twenty-One - Fair Allocation Rules," Handbook of Social Choice and Welfare, in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 2, chapter 21, pages 393-506, Elsevier.
    8. Fleurbaey, Marc & Zuber, Stéphane, 2017. "Fair management of social risk," Journal of Economic Theory, Elsevier, vol. 169(C), pages 666-706.
    9. Asheim, Geir B. & Buchholz, Wolfgang & Tungodden, Bertil, 2001. "Justifying Sustainability," Journal of Environmental Economics and Management, Elsevier, vol. 41(3), pages 252-268, May.
    10. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    11. Philippe Weil, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(1), pages 29-42.
    12. Antony Millner, 2013. "On Welfare Frameworks and Catastrophic Climate Risks," CESifo Working Paper Series 4442, CESifo.
    13. Gajdos, Thibault & Maurin, Eric, 2004. "Unequal uncertainties and uncertain inequalities: an axiomatic approach," Journal of Economic Theory, Elsevier, vol. 116(1), pages 93-118, May.
    14. Pindyck, Robert S., 2000. "Irreversibilities and the timing of environmental policy," Resource and Energy Economics, Elsevier, vol. 22(3), pages 233-259, July.
    15. Hammond, Peter J, 1979. "Equity in Two Person Situations: Some Consequences," Econometrica, Econometric Society, vol. 47(5), pages 1127-1135, September.
    16. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    17. Marc Fleurbaey, 2010. "Assessing Risky Social Situations," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 649-680, August.
    18. Christian Traeger, 2012. "Once Upon a Time Preference - How Rationality and Risk Aversion Change the Rationale for Discounting," CESifo Working Paper Series 3793, CESifo.
    19. Udo Ebert & Patrick Moyes, 2003. "Equivalence Scales Reconsidered," Econometrica, Econometric Society, vol. 71(1), pages 319-343, January.
    20. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 4, pages 76-84, Palgrave Macmillan.
    21. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521887427, January.
    22. Fudenberg, Drew & Levine, David K., 2012. "Fairness, risk preferences and independence: Impossibility theorems," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 606-612.
    23. Geir Asheim & Walter Bossert & Yves Sprumont & Kotaro Suzumura, 2010. "Infinite-horizon choice functions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(1), pages 1-21, April.
    24. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    25. Fleurbaey, Marc & Zuber, Stéphane, 2015. "Discounting, beyond utilitarianism," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-52.
    26. Kjell Arne Brekke & Geir B. Asheim, 2002. "Sustainability when capital management has stochastic consequences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 19(4), pages 921-940.
    27. Marc Fleurbaey & Stéphane Zuber, 2013. "Inequality aversion and separability in social risk evaluation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 675-692, November.
    28. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    29. Broome, John, 1984. "Uncertainty and Fairness," Economic Journal, Royal Economic Society, vol. 94(375), pages 624-632, September.
    30. Karp, Larry, 2005. "Global warming and hyperbolic discounting," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 261-282, February.
    31. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
    32. Selden, Larry, 1978. "A New Representation of Preferences over "Certain A Uncertain" Consumption Pairs: The "Ordinal Certainty Equivalent" Hypothesis," Econometrica, Econometric Society, vol. 46(5), pages 1045-1060, September.
    33. Simon Grant & Atsushi Kajii & Ben Polak & Zvi Safra, 2010. "Generalized Utilitarianism and Harsanyi's Impartial Observer Theorem," Econometrica, Econometric Society, vol. 78(6), pages 1939-1971, November.
    34. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    35. Paolo Giovanni Piacquadio, 2017. "A Fairness Justification of Utilitarianism," Econometrica, Econometric Society, vol. 85, pages 1261-1276, July.
    36. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    37. Edi Karni & Marie-Louise Vier?, 2013. ""Reverse Bayesianism": A Choice-Based Theory of Growing Awareness," American Economic Review, American Economic Association, vol. 103(7), pages 2790-2810, December.
    38. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    39. Zuber, Stéphane & Asheim, Geir B., 2012. "Justifying social discounting: The rank-discounted utilitarian approach," Journal of Economic Theory, Elsevier, vol. 147(4), pages 1572-1601.
    40. Thomas Sterner & U. Martin Persson, 2008. "An Even Sterner Review: Introducing Relative Prices into the Discounting Debate," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 61-76, Winter.
    41. Amrita Dhillon & Jean-Francois Mertens, 1999. "Relative Utilitarianism," Econometrica, Econometric Society, vol. 67(3), pages 471-498, May.
    42. Epstein, Larry G & Segal, Uzi, 1992. "Quadratic Social Welfare Functions," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 691-712, August.
    43. Peter A. Diamond, 1967. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparison of Utility: Comment," Journal of Political Economy, University of Chicago Press, vol. 75, pages 765-765.
    44. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
    45. W. M. Gorman, 1968. "The Structure of Utility Functions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(4), pages 367-390.
    46. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
    47. Millner, Antony, 2013. "On welfare frameworks and catastrophic climate risks," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 310-325.
    48. K. J. Arrow & A. K. Sen & K. Suzumura (ed.), 2011. "Handbook of Social Choice and Welfare," Handbook of Social Choice and Welfare, Elsevier, edition 1, volume 2, number 2.
    49. Piacquadio, Paolo G., 2014. "Intergenerational egalitarianism," Journal of Economic Theory, Elsevier, vol. 153(C), pages 117-127.
    50. Adler, Matthew & Treich, Nicolas, 2014. "Consumption, Risk and Prioritarianism," TSE Working Papers 14-500, Toulouse School of Economics (TSE).
    51. Asheim, Geir B., 1991. "Unjust intergenerational allocations," Journal of Economic Theory, Elsevier, vol. 54(2), pages 350-371, August.
    52. Grant, Simon & Kajii, Atsushi & Polak, Ben & Safra, Zvi, 2012. "Equally-distributed equivalent utility, ex post egalitarianism and utilitarianism," Journal of Economic Theory, Elsevier, vol. 147(4), pages 1545-1571.
    53. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
    54. Antoine Bommier & Asen Kochov & François Le Grand, 2017. "On Monotone Recursive Preferences," Econometrica, Econometric Society, vol. 85, pages 1433-1466, September.
    55. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309-309.
    56. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-1012, December.
    57. Tanguy Isaac & Paolo Piacquadio, 2015. "Equity and efficiency in an overlapping generation model," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 44(3), pages 549-565, March.
    58. Matthew O. Jackson & Leeat Yariv, 2014. "Present Bias and Collective Dynamic Choice in the Lab," American Economic Review, American Economic Association, vol. 104(12), pages 4184-4204, December.
    59. Chew, Soo Hong & Epstein, Larry G., 1990. "Nonexpected utility preferences in a temporal framework with an application to consumption-savings behaviour," Journal of Economic Theory, Elsevier, vol. 50(1), pages 54-81, February.
    60. Blackorby, Charles & Donaldson, David, 1982. "Ratio-Scale and Translation-Scale Full Interpersonal Comparability without Domain Restrictions: Admissible Social-Evaluation Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(2), pages 249-268, June.
    61. Reyer Gerlagh, 2012. "Carbon Prices for the Next Thousand Years," Review of Environment, Energy and Economics - Re3, Fondazione Eni Enrico Mattei, August.
    62. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    63. Geir B. Asheim & Stéphane Zuber, 2014. "Probability Adjusted Rank-Discounted Utilitarianism," CESifo Working Paper Series 4728, CESifo.
    64. Marc Fleurbaey & Stéphane Zuber, 2013. "Inequality aversion and separability in social risk evaluation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 675-692, November.
    65. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
    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. Asheim, Geir B. & Zuber, Stéphane, 2016. "Evaluating intergenerational risks," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 104-117.
    2. de la Croix, David & Doepke, Matthias, 2021. "A soul’s view of the optimal population problem," Mathematical Social Sciences, Elsevier, vol. 112(C), pages 98-108.
    3. Tangren Feng & Shaowei Ke, 2018. "Social Discounting and Intergenerational Pareto," Econometrica, Econometric Society, vol. 86(5), pages 1537-1567, September.

    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. Fleurbaey, Marc & Zuber, Stéphane, 2015. "Discounting, beyond utilitarianism," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-52.
    2. Berger, Loïc & Emmerling, Johannes, 2017. "Welfare as Simple(x) Equity Equivalents," MITP: Mitigation, Innovation and Transformation Pathways 254044, Fondazione Eni Enrico Mattei (FEEM).
    3. Loïc Berger & Johannes Emmerling, 2020. "Welfare As Equity Equivalents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 727-752, September.
    4. Adler, Matthew D. & Treich, Nicolas, 2017. "Utilitarianism, prioritarianism, and intergenerational equity: A cake eating model," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 94-102.
    5. Fleurbaey, Marc & Zuber, Stéphane, 2017. "Fair management of social risk," Journal of Economic Theory, Elsevier, vol. 169(C), pages 666-706.
    6. Fleurbaey, Marc & Zuber, Stéphane, 2015. "Discounting, risk and inequality: A general approach," Journal of Public Economics, Elsevier, vol. 128(C), pages 34-49.
    7. Marc Fleurbaey, 2018. "Welfare economics, risk and uncertainty," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(1), pages 5-40, February.
    8. W. Botzen & Jeroen Bergh, 2014. "Specifications of Social Welfare in Economic Studies of Climate Policy: Overview of Criteria and Related Policy Insights," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(1), pages 1-33, May.
    9. Christoph M. Rheinberger & Nicolas Treich, 2017. "Attitudes Toward Catastrophe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(3), pages 609-636, July.
    10. Adler, Matthew & Treich, Nicolas, 2014. "Consumption, Risk and Prioritarianism," TSE Working Papers 14-500, Toulouse School of Economics (TSE).
    11. Asheim, Geir B. & Zuber, Stéphane, 2016. "Evaluating intergenerational risks," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 104-117.
    12. Matthew Adler & Nicolas Treich, 2015. "Prioritarianism and Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(2), pages 279-308, October.
    13. Bommier, Antoine & Lanz, Bruno & Zuber, Stéphane, 2015. "Models-as-usual for unusual risks? On the value of catastrophic climate change," Journal of Environmental Economics and Management, Elsevier, vol. 74(C), pages 1-22.
    14. Christian Traeger, 2014. "Why uncertainty matters: discounting under intertemporal risk aversion and ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(3), pages 627-664, August.
    15. Al-Najjar, Nabil I. & Pomatto, Luciano, 2020. "Aggregate risk and the Pareto principle," Journal of Economic Theory, Elsevier, vol. 189(C).
    16. Miyagishima, Kaname, 2019. "Fair criteria for social decisions under uncertainty," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 77-87.
    17. Aurélie Méjean & Antonin Pottier & Marc Fleurbaey & Stéphane Zuber, 2020. "Catastrophic climate change, population ethics and intergenerational equity," Climatic Change, Springer, vol. 163(2), pages 873-890, November.
    18. Fleurbaey, Marc & Gajdos, Thibault & Zuber, Stéphane, 2015. "Social rationality, separability, and equity under uncertainty," Mathematical Social Sciences, Elsevier, vol. 73(C), pages 13-22.
    19. Rick van der Ploeg, 2020. "Discounting and Climate Policy," CESifo Working Paper Series 8441, CESifo.
    20. Asheim, Geir B. & Zuber, Stéphane, 2015. "Evaluating Intergenerational Risks: Probabillity Adjusted Rank-Discounted Utilitarianism," Memorandum 06/2015, Oslo University, Department of Economics.

    More about this item

    Keywords

    Intergenerational justice; risk; social ordering; discounting;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

    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:hhs:osloec:2015_015. 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: Mari Strønstad Øverås (email available below). General contact details of provider: https://edirc.repec.org/data/souiono.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.