Journal of Risk and Uncertainty

, Volume 37, Issue 2–3, pp 141–169 | Cite as

Discounting climate change

Article

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

Utilitarianism Prioritarianism Intergenerational well-being Social discount rates Uncertainty Inequality aversion Risk aversion Rate of time preference Hyperbolic discounting Rate of return on investment Precautionary principle Elasticity of marginal felicity Risk-free discount rates Thin-tailed distributions 

JEL Classification

C61 D53 D9 G12 

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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.Faculty of EconomicsUniversity of CambridgeCambridgeUK

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