The cross-sectional implications of the social discount rate

Maya Eden (Brandeis University)

GPI Working Paper No. 12-2021, published in Econometrica

How should policy discount future returns? The standard approach to this normative question is to ask how much society should care about future generations relative to people alive today. This paper establishes an alternative approach, based on the social desirability of redistributing from the current old to the current young. Along the balanced growth path, bounds on the welfare gains from age-based redistribution imply bounds on the social discount rate. A calibration shows that an objective of maximizing the sum of utilities in each period implies social discount rates that are within a percentage point of the market interest rate.

Other working papers

Economic inequality and the long-term future – Andreas T. Schmidt (University of Groningen) and Daan Juijn (CE Delft)

Why, if at all, should we object to economic inequality? Some central arguments – the argument from decreasing marginal utility for example – invoke instrumental reasons and object to inequality because of its effects…

On the desire to make a difference – Hilary Greaves, William MacAskill, Andreas Mogensen and Teruji Thomas (Global Priorities Institute, University of Oxford)

True benevolence is, most fundamentally, a desire that the world be better. It is natural and common, however, to frame thinking about benevolence indirectly, in terms of a desire to make a difference to how good the world is. This would be an innocuous shift if desires to make a difference were extensionally equivalent to desires that the world be better. This paper shows that at least on some common ways of making a “desire to make a difference” precise, this extensional equivalence fails.

Cassandra’s Curse: A second tragedy of the commons – Philippe Colo (ETH Zurich)

This paper studies why scientific forecasts regarding exceptional or rare events generally fail to trigger adequate public response. I consider a game of contribution to a public bad. Prior to the game, I assume contributors receive non-verifiable expert advice regarding uncertain damages. In addition, I assume that the expert cares only about social welfare. Under mild assumptions, I show that no information transmission can happen at equilibrium when the number of contributors…