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
When should an effective altruist donate? – William MacAskill (Global Priorities Institute, Oxford University)
Effective altruism is the use of evidence and careful reasoning to work out how to maximize positive impact on others with a given unit of resources, and the taking of action on that basis. It’s a philosophy and a social movement that is gaining considerable steam in the philanthropic world. For example,…
‘The only ethical argument for positive 𝛿’? – Andreas Mogensen (Global Priorities Institute, Oxford University)
I consider whether a positive rate of pure intergenerational time preference is justifiable in terms of agent-relative moral reasons relating to partiality between generations, an idea I call discounting for kinship. I respond to Parfit’s objections to discounting for kinship, but then highlight a number of apparent limitations of this…
Intergenerational experimentation and catastrophic risk – Fikri Pitsuwan (Center of Economic Research, ETH Zurich)
I study an intergenerational game in which each generation experiments on a risky technology that provides private benefits, but may also cause a temporary catastrophe. I find a folk-theorem-type result on which there is a continuum of equilibria. Compared to the socially optimal level, some equilibria exhibit too much, while others too little, experimentation. The reason is that the payoff externality causes preemptive experimentation, while the informational externality leads to more caution…