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Intergenerational equity and the discount rate for cost-benefit analysis

  • ANNA RUBINCHIK

    (University of Colorado at Boulder, USA)

  • JEAN-FRANCOIS MERTENS

    (CORE, UCL, Belgium)

A necessary condition is time-invariance, which is satisfied by any common solution concept in an overlapping generations model with exogenous growth. The method is applied to derive the discount rate for cost-benefit analysis under two different utilitarian welfare functions: traditional and relative. It is only under relative utilitarianism that the discount rate is well-defined for a heterogeneous society, is corroborated by an independent argument on the value of human life, and equals the growth rate of per capita consumption, thus falling in the range suggested by the U.S. Office of Management and Budget.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 874.

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Date of creation: 2008
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Handle: RePEc:red:sed008:874
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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