, Volume 48, Issue 3, pp 363-390
Date: 17 Oct 2010

The Ethics of Intertemporal Distribution in a Warming Planet

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This paper evaluates, from the ethical viewpoint, current work by economists on intergenerational resource allocation in the presence of global warming. We begin by attempting to elucidate the debate that has recently occurred on the appropriate choice of the discount rate. We offer three justifications for maximizing the discounted sum of generational utilities, and find only one of these to be a satisfactory justification of that practice: the possibility that the human species may become extinct. This implies that a very small discount rate (large discount factor) should be used. We argue that the justification for discounting, inherent in the approaches taken by many economists, is that of ‘the present generation of hegemon,’ which is unacceptable. The role of the Ramsey equation in deducing the discount rate in these theories is explained. As an alternative to discounted utilitarianism, we propose a principle of sustainability; we describe optimal paths that have been calculated for the sustainabilitiarian (Rawlsian) objective function, and paths that will sustain growth in welfare, at a positive rate. We report results concerning optimal paths when the uncertainty of existence of future generations is taken into account. In sharp contrast to the utilitarian model, it turns out that under some conditions, the ‘sustainabilitarian’ can ignore the uncertainty regarding the date at which humans become extinct. There is a striking difference between the solutions of the discounted utilitarian program and the sustainabilitarian program under uncertainty.

Many of the ideas presented here, and all of the formal results, come from a collaboration with Joaquim Silvestre and Humberto Llavador on the problem of intergenerational welfare in a warming planet. The paper reports some of the conclusions from our joint work, referenced below. I thank Geir Asheim, Klaus Nehring, Olof Johansson-Stenman and a referee for their suggestions.