Journal of Risk and Uncertainty

, Volume 37, Issue 2, pp 141–169

Discounting climate change

Article

DOI: 10.1007/s11166-008-9049-6

Cite this article as:
Dasgupta, P. J Risk Uncertain (2008) 37: 141. doi:10.1007/s11166-008-9049-6

Abstract

In this paper I offer a fairly complete account of the idea of social discount rates as applied to public policy analysis. I show that those rates are neither ethical primitives nor observables as market rates of return on investment, but that they ought instead to be derived from economic forecasts and society's conception of distributive justice concerning the allocation of goods and services across personal identities, time, and events. However, I also show that if future uncertainties are large, the formulation of intergenerational well-being we economists have grown used to could lead to ethical paradoxes even if the uncertainties are thin-tailed. Various modelling avenues that offer a way out of the dilemma are discussed. None is entirely satisfactory.

Keywords

UtilitarianismPrioritarianismIntergenerational well-beingSocial discount ratesUncertaintyInequality aversionRisk aversionRate of time preferenceHyperbolic discountingRate of return on investmentPrecautionary principleElasticity of marginal felicityRisk-free discount ratesThin-tailed distributions

JEL Classification

C61D53D9G12

Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.Faculty of EconomicsUniversity of CambridgeCambridgeUK