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 growth under transformative AI – Philip Trammell (Global Priorities Institute, Oxford University) and Anton Korinek (University of Virginia)
Industrialized countries have long seen relatively stable growth in output per capita and a stable labor share. AI may be transformative, in the sense that it may break one or both of these stylized facts. This review outlines the ways this may happen by placing several strands of the literature on AI and growth within a common framework. We first evaluate models in which AI increases output production, for example via increases in capital’s substitutability for labor…
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…
Estimating long-term treatment effects without long-term outcome data – David Rhys Bernard (Rethink Priorities), Jojo Lee and Victor Yaneng Wang (Global Priorities Institute, University of Oxford)
The surrogate index method allows policymakers to estimate long-run treatment effects before long-run outcomes are observable. We meta-analyse this approach over nine long-run RCTs in development economics, comparing surrogate estimates to estimates from actual long-run RCT outcomes. We introduce the M-lasso algorithm for constructing the surrogate approach’s first-stage predictive model and compare its performance with other surrogate estimation methods. …