This article concentrates on the critique by John Rawls and Derek Parfit of the use of a discount rate in economics. In a presentation of the basic economics underlying the use of a discount rate, the inherently problematic nature of people’s preferences with respect to time are highlighted. The second part discusses the role of the discount rate in economic optimal growth models. An outline of the economic theory of optimal growth is provided, pointing (...) out how Rawls’s analysis of justice between generations fits nicely into this economic discussion, thus explaining his interest in the discount rate. For Rawls the basic problem with the discount rate is that one variable is caught between two objectives: guaranteeing an efficient and at the same time a fair solution. Finally Derek Parfit’s analysis of the use of discount rates is examined. Parfit points out that a discount rate is often used as a crude rule of thumb which wrongly represents our reasons for discounting. The article concludes with a discussion of a study undertaken by a number of respected economists for the IPCC which exhibits all the mistakes that Parfit warns us against. (shrink)

Climate change is projected to have very severe impacts on future generations. Given this, any adequate response to it has to consider the nature of our obligations to future generations. This paper seeks to do that and to relate this to the way that inter-generational justice is often framed by economic analyses of climate change. To do this the paper considers three kinds of considerations that, it has been argued, should guide the kinds of actions that one generation (...) should take if it is to treat both current and future people equitably. In particular it examines the case for what has been termed pure time discounting, growth discounting and opportunity cost discounting; and it assesses their implications for climate policy. It argues that none of these support the claims of those who think they give us reason to delay aggressive mitigation policies. It also finds, however, that the second kind of argument can, in certain circumstances, provide support for passing on some of the costs of mitigation to future generations. (shrink)

Discounting is a manifestation of behavioral impulsivity, which is closely related to self-regulation processes. The decision-making process for intertemporal choices is governed by the inhibition of impulses, which can influence both risk and time-related attitudes. This paper utilizes self-reported measures of risk, impatience, and impulsivity attitudes to examine their impact on the implicit discount rate used when weighing the current purchase cost against future energy savings of appliances. It analyzes and tests the interplay between these attitudes using (...) specific functional forms and causal models. The results highlight the role of risk, impatience and impulsivity on the discount rate and the biases that arise from omitting impulsive attitudes. In addition, other factors such as environmental and social preferences, attitudes, and financial constraints contribute to the implicit discount rate. (shrink)

discounting the future' is one on which philosophers and economists have divergent professional views. There is a lot of talking at cross-purposes across the disciplinary divide here; but there is a fair bit of confusion (I think) within disciplines as well. My aim here is essentially clarificatory. I draw several distinctions that I see as significant: • between inter-temporal and intergenerational questions • between price (discount rate) and quantity (inter-temporal and intergenerational allocations) as the ethically relevant magnitude, (...) and • between price change and preference change as the primary instrument of change. I show that discounting does not violate the principle of inter-temporal and intergenerational neutrality, but I also cast some doubt on whether making adequate allowance for future generations has really been the problem that economists and philosophers seem to have taken it to be. Key Words: discount rates • intergenerational justice • future generations • `feasibility' analysis. (shrink)

Reciprocal altruism involves foregoing an immediate benefit for the sake of a greater long-term reward. It follows that individuals who exhibit a stronger preference for future over immediate rewards should be more disposed to engage in reciprocal altruism – in other words, ‘patient’ people should be more cooperative. The present study tested this prediction by investigating whether participants’ contributions in a public-good game correlated with their ‘discount rate’. The hypothesis was supported: patient people are indeed more cooperative. (...) The paper discusses alternative interpretations of this result, and makes some suggestions for future research. (shrink)

In carrying out cost-benefit or cost-effective analysis, a discount rate should be applied to some kinds of future benefits and costs. It is controversial, though, whether future health is in this class. I argue that one of the standard arguments for discounting (from diminishing marginal returns) is inapplicable to the case of health, while another (favouring a pure rate of time preference) is unsound in any case. However, there are two other reasons that might support (...) a positive discount rate for future health: one relating to uncertainty, and the other relating to the instrumental benefits of improved health. While the latter considerations could be modelled via a discount rate, they could alternatively be modelled more explicitly, in other ways; I briefly discuss which modelling method is preferable. Finally, I argue against the common claims that failing to discount future health would lead to paradox, and/or to inconsistency with the way future cash flows are treated. (shrink)

Scrutinizes a class of accounting prices that has been the object of regular misunderstanding: social discount rates. The topic is over 40 years old, yet controversy rages over matters that have long been settled, involving as they do technical economics. Many who express views on social discount rates overlook the literature and make incorrect claims. I point to a few as the occasions warrant.

A central point of debate over environmental policies concerns how future costs and benefits should be assessed. The most commonly used method for assessing the value of future costs and benefits is economic discounting. One often-cited justification for discounting is uncertainty. More specifically, it is risk aversion coupled with the expectation that future prospects are more risky. In this paper I argue that there are at least two reasons for disputing the use of risk aversion as a (...) justification for discounting when dealing with longterm decisions, one technical and one ethical. Firstly, I argue that technically, it implies an inconsistency between theory and practice. And secondly, I argue that discounting for uncertainty relies on a form of individualism which, while reasonable in standard microeconomic theory where an agent chooses how to spread her own consumption over her own lifetime, is inappropriate in the context of intergenerational social decisions. (shrink)

Rawls's difference principle contains a certain normative ambiguity, so that opposing views, including strong inegalitarian ones, might find a home under it. The element that introduces this indeterminacy is the absence of an explicit reference to time . Thus, a society that agrees on the difference principle as the proper justification of basic political-economic institutions, might nevertheless disagree on whether their specific institutions are justified by that principle. Such disagreement would most often centre on issues of fact: will a more (...) egalitarian policy in fact prioritize the least well off or will a more libertarian policy do so? But facts are not the only possible points of contention. According to the fundamental indeterminacy, considering merely the sum of advantages to the least well off, the difference principle is indifferent among different flows of equal income over time. It cannot adjudicate among more or less unequal distributions across social groups when the sum income of the least advantaged group is constant. The fundamental indeterminacy lies at the bottom of three derivative indeterminacies: an adequate future discount rate, an acceptable absolute minimum, and a reasonable time interval. These might form the basis of political disagreement among self-proclaimed endorsers of the difference principle of left and right over the way the principal social-economic institutions ought to be structured and the distributions that ensue. Key Words: Rawls • equality • incentives • future discount rate • primary goods • well-being. (shrink)

The social rate of discount--that is, the way decision makers today evaluate future consequences of collective activity--raises difficult issues of intergenerational justice. When benefits are discounted at the present rate the United States government requires, serious efforts to promote public health over the long term will fail cost-benefit tests. No consensus exists among theorists to establish fair rates; philosophers support discounting with economic arguments that economists reject, while economists no less paradoxically support the concept using philosophical (...) arguments that philosophers disavow. A new emphasis on the role of consumers' and citizens' time preferences, however, will keep open rather than close debates on the social discount rate. (shrink)

The social discount rate – the rate at which future benefit flows from government investment are discounted to present value – has been a frequent subject of technical debate among professional economists. From a broader perspective, however, the selection of an appropriate rate enjoins consideration of questions that define the very contours of our public philosophy. It carries implicit assumptions about the nature of citizenship, the relation between public and private spheres, and, most singularly, the (...) status of a political society as it is located in time. A key determinant of intertemporal economic allocation, the social discount rate provides a unique registry of a polity's historical consciousness and perceptions of its intergenerational obligations. Yet the highly technical nature of the debate over the discount rate has proven inhospitable to scholars otherwise inclined to investigate its ethical dimensions. Some, notably A. K. Sen, have begun to address these philosophical issues, though much territory remains to be explored. (shrink)

The behavior of individuals currently living will generally have long-term consequences that affect the well-being of those who will come to live in the future. Intergenerational interdependencies of this nature raise difficult moral issues because only the current generation is in a position to decide on actions that will determine the nature of the world in which future generations will live. Although most are willing to attach some weight to the interests of future generations, many would argue (...) that it is not necessary to treat these interests as equivalent to those of the current generation. A common approach in this context is to use a system of discounting to evaluate future benefits and harms. This paper assesses the logic of discounting drawing on the writings of economists and philosophers. Much of the economic literature concerns the choice of an appropriate social discount rate. The social discount rate can be taken to reflect beliefs about the rights of future generations, a subject that has been extensively debated in the phioosophic literature. The writings of both economists and philosophers concerned with the weight to attach to the interests of future generations are reviewed and evaluated in this paper and the implications for environmental policy are discussed. (shrink)

When assessing the cost effectiveness of health care programmes, health economists typically presume that distant events should be given less weight than present events. This article examines the moral reasonableness of arguments advanced for positive discounting in cost-effectiveness analysis both from an intergenerational and an intrapersonal perspective and assesses if arguments are equally applicable to health and monetary outcomes. The article concludes that behavioral effects related to time preferences give little or no reason for why society at large should favour (...) the present over the future when making intergenerational choices regarding health. The strongest argument for discounting stems from the combined argument of diminishing marginal utility in the presence of growth. However, this hinges on the assumption of actual growth in the relevant good. Moreover, current modern democracy may be insufficiently sensitive to the concerns of future generations. The second part of the article categorises preference failures (which justify paternalistic responses) into two distinct groups, myopic and acratic. The existence of these types of preference failures makes elicited time preferences of little normative relevance when making decisions regarding the social discount rate, even in an intrapersonal context. As with intergenerational discounting, the combined arguments of growth and diminishing marginal utility offer the strongest arguments for discounting in the intrapersonal context. However, there is no prima facie reason to assume that this argument should apply equally to health and monetary values. To be sure, selecting an approach towards discounting health is a complex matter. However, the life-or-death implications of any approach require that the discussion not be downplayed to merely a technical matter for economists to settle. (shrink)

Utility discounting in intertemporal economic modelling has been viewed as problematic, both for descriptive and normative reasons. However, positive utility discount rates can be defended normatively; in particular, it is rational for future utility to be discounted to take into account model-independent outcomes when decision-making under risk. The resultant values will tend to be smaller than descriptive rates under most probability assignments. This also allows us to address some objections that intertemporal considerations will be overdemanding. A principle for (...) utility discount rates is suggested which is rooted in probability discounting. Utility discounting is defended against objections from Parfit (1984) and Broome (2005); Broome (2012). A sample utility discount rate is estimated. [Open access]. (shrink)

One’s generosity to others declines as a function of social distance, which is known as social discounting. We examined cultural similarities and differences in social discounting and the mediating roles of the two aspects of interdependence (self-expression and distinctiveness of the self) as well as the two aspects of independence (harmony-seeking and rejection avoidance). Using the same procedure that previous researchers used to test North Americans, Study 1 showed that compared to North Americans, Japanese discount more steeply a partner’s (...) outcomes compared to their own future outcomes, whereas the decrease in the subjective value of the partner’s outcomes accelerates less as a function of social distance. To examine the cultural similarities and differences in social discounting in more detail, Study 2 tested Japanese and Germans and found that the hyperbolic with exponent model fitted the participants’ discounting behaviors better than the other models, except for the loss condition in Germans where the utility of the q-exponential model was indicated. Moreover, although the social discounting rate was higher in Japanese than in Germans, the cultural difference was limited to the gain frame. However, the decline in a person’s generosity accelerated less as a function of social distance in Japanese than in Germans. Furthermore, the cultural difference in the social discounting in gains was mediated by the level of harmony-seeking, which was higher in Germans than in Japanese. Implications for individuals’ generosity against the backdrop of cultural characteristics are discussed. (shrink)

Temporal discounting is a technical operation in climate change economics. When discount rates are positive, economic evaluation treats future benefits as less important than equivalent present benefits. This chapter explains and critically evaluates four different reasons economists have given for tying discount rates to the interest rates we observe in real-world markets. I suggest that while philosophers have correctly criticized three of these reasons, their criticisms of the fourth miss the mark. This is because philosophers have not (...) taken heed of the distinct analytical framework in which the fourth reason arises. (shrink)

This paper is about time preferences, the phenomenon that the very same things are usually considered the less valuable the farther in the future they are obtained. The utilities of those things are discounted at a certain rate. The paper presents a novel normative argument for exponential discount rates, whatever their empirical adequacy. It proposes to take indexical utility seriously, i.e. utilities referring to indexical propositions (that speak of ‘I’, ‘now’, etc.) as opposed to non-indexical propositions. Economic (...) focus is only on the latter, while the former are neglected. The potential ignorance of when is now generates a difference between indexical and non-indexical utility that can be exploited for a novel argument in favour of exponential discount rates. (shrink)

Recent experiments suggest that search direction causally affects the discounted valuation of delayed payoffs. Comparisons between options can increase individuals’ patience toward future payoff options, while searching within options instead promotes impatient choices. We further test the robustness and specificity of this relationship using a novel choice task. Here individuals choose between pairs of delayed payoffs instead of single delayed outcomes. We observe a relationship between search styles and temporal discounting that are the opposite of those previously reported. Integrators (...) – those who tend to compare attributes within alternatives – discount and choose more slowly than comparators – those who are more likely to compare between alternatives. This finding supports and augments the view that individuals’ search strategy is predictive of subsequent discount rates. In particular, the direction of this relationship is further modifiable based on the spatial layout and varying information within an individual’s decision-making environment. (shrink)

Intergenerational impartiality requires putting the welfare of future generations at par with that of our own. However, rational choice requires weighting all welfare values by the respective probabilities of realization. As the risk of non-survival of mankind is strictly positive for all time periods and as the probability of non-survival is cumulative, the probability weights operate like discount factors, though justified on a morally justifiable and completely different ground. Impartial intertemporal welfare maximization is acceptable, though the welfare of (...) people in the very far future has lower effects as the probabilities of their existence are also lower. However, the effective discount rate on future welfare values (distinct from monetary values) justified on this ground is likely to be less than 0.1 per annum. Such discounting does not compromise environmental protection and sustainability unduly. The finiteness of our universe implies that the sum of our expected welfare to infinity remains finite, solving the paradox of having to compare different infinite values in optimal growth/conservation theories. (shrink)

Temporal discounting is the tendency to devalue temporally distant rewards. Past studies have examined the k-value, the indifference point, and the area under the curve as dependent measures on this task. The current study included these three measures and a fourth measure, called the interest rate total score. The interest rate total score was based on scoring only those items in which the delayed choice should be preferred given the expected return based on simple interest rates. In addition, (...) associations with several individual difference measures were examined including intelligence, executive functions (inhibition, working memory, and set-shifting), thinking dispositions (Need for Cognition and Consideration of Future Consequences) and engagement in substance use and gambling behavior. A staircase temporal discounting task was examined in a sample of 99 university students. Replicating previous studies, temporal discounting increased with longer delays to reward and decreased with higher reward magnitudes. A hyperbolic function accounted for variance in temporal discounting better than an exponential function. Reaction time at the indifference point was significantly longer than at the other choice points. The four dependent measures of temporal discounting were all significantly correlated and were also significantly associated with our individual difference measures. That is, the tendency to wait for a larger delayed reward on all of the temporal discounting measures was associated with higher intelligence, higher executive functions and more consideration of future consequences. Associations between our measures of temporal discounting and outcomes related to substance use and gambling behavior were modest in our university sample. (shrink)

People differ in the extent to which they discount the values of future rewards. Behavioural economists measure these differences in terms of functions that describe rates of reduced valuation in the future – temporal discounting – as these vary with time. They measure differences in preference for risk – differing rates of probability discounting – in terms of similar functions that describe reduced valuation of rewards as the probability of their delivery falls. So-called ‘impulsive’ people, including people (...) disposed to addiction, tend to choose rewards in patterns that are described by unusually steeply sloped discount functions. The empirical literature is ambivalent as to whether this applies to pathological gamblers (PGs) who manifest most other behavioural patterns associated with addiction, with different, equally careful studies suggesting opposite conclusions (Petry & Casarella 1999; Holt, Green & Myerson 2003). This puzzle may arise from the fact that most previous experiments on discounting behaviour were not designed so as to allow effects of high temporal discounting to be distinguished from effects of low probability discounting. (Addiction has sometimes been associated with the latter because it seems to involve, at least in the starting addict, under appreciation of risk.) Our research project investigates both forms of discounting behaviour and their relationship to severity of risk of PG in a community sample of South African gamblers. (shrink)

The integration of technology into the workplace has resulted in a long trend of changing working conditions, from agriculture to today’s growing “knowledge economy.” This latest development depends on information technology, which may continue to evolve through eventual convergence with nanotechnology and biotechnology. Knowledge work places more emphasis on an expanded skill set, as opposed to the smaller set of specialized skills typically needed in an industrial economy. Future technological progress might lead to further enhancement of human potential or (...) to even greater inequality in income distribution, generating even larger pressures toward the divisions in society. This is illustrated by recently proposed scenarios of accelerated and logistic growth of technological progress. In an attempt to understand these dynamics, a simple model is constructed to clarify a possible relationship between technology and social systems. The model, based on the technology maturation process, focuses on the delay in social systems in responding to a technological change. Examples of current problems of technology and social issues are reviewed in the model’s context. Some potential approaches to framing these problems from an ethical viewpoint are reviewed, including applying Rawlsian concepts of fairness and the “veil of ignorance” and applying a simple discount rate to balance perceived future risks, technological solutions, and uncertainty. (shrink)

This article explores how experienced regret and relief evoked in a risky gambling task influence subsequent intertemporal pro-social behavior. We apply a dictator game experiment with delayed rewards to investigate the effect on donating behavior by simultaneously the time delay when the recipient accepts the donation and the emotions experienced by the participant. We examine this effect using a choice titration procedure. The results reveal that independent of the prior experienced emotions, participants’ donations decrease as the time delay rises; the (...) hyperbolic model provides a better explanation of this finding. Significantly, experienced regret impacts the shape of the social discount function with delayed rewards, which is reflected in notably different discount rates. Participants who experienced regret exhibit a lower discount rate than those in the relief condition. Note that this distinct type of generosity differs significantly at the 14-day delay but not at the shortest and longest. It follows that regret can promote future altruism and intertemporal pro-social behavior, depending on the delay. (shrink)

People seem to have pure time preferences about trade-offs concerning their own pleasures and pains, and such preferences contribute to estimates of people's individual time discount rate. Do pure time preferences also matter to interpersonal welfare trade-offs, including those concerning the welfare of future generations? Most importantly, should the intergenerational time discount rate include a pure time preference? Descriptivists claim that the intergenerational discount rate should reflect actual people's revealed preferences, and thus it (...) should include a pure time preference. Prescriptivists claim that the intergenerational discount rate should be based on moral analysis, and thus they (often) claim that the rate of pure time preference should be zero. I argue that regardless of which view is correct, a focus on pure time preference is misplaced. First, the most plausible interpretation of descriptive preferences for intergenerational trade-offs is that people are socially biased and not time biased. Second, social bias is superior to time bias as a prescriptive reason to discount the welfare of future people. Third, recent advances in measuring social bias as a social discount rate make social bias a viable replacement for time bias in economic analyses of intergenerational welfare trade-offs. (shrink)

_ Source: _Page Count 28 Recent debates over climate change policy have made it clear that the choice of a social discount rate has enormous consequences for the amount of mitigation that will be recommended. The social discount rate determines how future costs are to be compared to present costs. Philosophers, however, have been almost unanimous in endorsing the view that the only acceptable social rate of time preference is zero, a view that, taken (...) literally, has either absurd or extremely radical implications. The first goal of this paper is to show that the standard arguments against temporal preference are much less persuasive than they are usually taken to be. The second goal is to explore two different avenues of argument that could be adopted, in order to show that temporal discounting of welfare may be permissible. The first involves simply an application of the method of reflective equilibrium, while the second involves consideration of the way that our abstract moral commitments are institutionalized. (shrink)

This chapter contains sections titled: References and Further Reading.

This paper proposes an index of national levels of “intergenerational solidarity”, defined as “investments or sacrifices that are intended to increase or sustain the wellbeing of future generations”. This is measured by examining changes to the value and stability of various capital flows and stocks. Nine indicators are drawn from national-level statistics: forest degradation rate, share of low-carbon energy consumption, and carbon footprint in the environmental dimension; adjusted net savings, current account balance, and wealth in equality in the (...) economic dimension; and primary pupil-teacher ratio, fertility rate, and GDP-adjusted child mortality in the social dimension. This returns a comparative index score of intergenerational solidarity for 120 countries covering 92% of the world’s population. Throughout, the state of the current research on intergenerational transfers and on the individual metrics used is discussed, and suggestions are made for further improvements and work in measuring intergenerational solidarity. As it stands, the index provides the widest coverage of indicators and nations aimed at measuring any similar concept. As such, it is particularly useful for those who wish to investigate the causes of intergenerational solidarity through cross-cultural comparisons. Online Appendix. (shrink)

We conduct an experiment to investigate the degree to which deviations from exponential discounting can be accounted for by the hypothesis of hyperbolic discounting. Subjects are asked to choose between an earlier or later payoff in a series of 40 choice questions. Each question consists of a pair of monetary amounts determined by compounding a given base amount at a constant rate per period. Two bases (8 and 20 dollars), three compounding rates (low, medium and high) and three delays (...) (2, 4, and 6 weeks) are each used. There are also 2 initial periods (Today and 2 weeks) and there are two separate questionnaires, one with lower “realistic” compounding rates and the other with higher compounding rates, typical of those used in previous studies. We analyze the detailed patterns of choice in 6 groups of 6 related questions each (in which the base and rate is fixed but the initial period and delay varies), documenting the frequency of patterns consistent with exponential discounting and with hyperbolic discounting. We find that exponential discounting is the clear modal choice pattern in virtually all cases. Hyperbolic discounting is never the modal pattern (except in the sense that constant discounting is a special case of hyperbolic discounting). We also estimate a linear probability model that takes account of individual heterogeneity. The estimates show substantial increases in the probability of choosing the later option when the compounding rate increases, as one would expect. There are small, sometimes significant, increases in this probability when the delay is increased or the initial period is in the future. Such behavior is consistent with hyperbolic discounting, but can account for only a small proportion of choices. Overall, deviations from exponential discounting appear to be due to error, or to other effects not accounted for by hyperbolic discounting. Principal among these is an increase in later choices when the base is larger. (shrink)

Intertemporal choice is the study of how people make choices about what and how much to do at various points in time, when choices at one time influence the possibilities available at other points in time. These choices are influenced by the relative value people assign to two or more payoffs at different points in time. Most choices require decision-makers to trade off costs and benefits at different points in time. These decisions may be about savings, work effort, education, nutrition, (...) exercise, health care and so forth. Since early in the twentieth century, economists have analyzed intertemporal decisions using the discounted utility model, which assumes that people evaluate the pleasures and pains resulting from a decision in much the same way that financial markets evaluate losses and gains, exponentially 'discounting' the value of outcomes according to how delayed they are in time. Discounted utility has been used to describe how people actually make intertemporal choices and it has been used as a tool for public policy. Policy decisions about how much to spend on research and development, health and education all depend on the discount rate used to analyze the decision. (shrink)

Previous research on linguistic relativity and economic decisions hypothesized that speakers of languages with obligatory tense marking of future time reference (FTR) should value future rewards less than speakers of languages which permit present tense FTR. This was hypothesized on the basis of obligatory linguistic marking (e.g., will) causing speakers to construe future events as more temporally distal and thereby to exhibit increased “temporal discounting”: the subjective devaluation of outcomes as the delay until they will occur increases. (...) However, several aspects of this hypothesis are incomplete. First, it overlooks the role of “modal” FTR structures which encode notions about the likelihood of future outcomes (e.g., might). This may influence “probability discounting”: the subjective devaluation of outcomes as the probability of their occurrence decreases. Second, the extent to which linguistic structures are subjectively related to temporal or probability discounting differences is currently unknown. To address these, we elicited FTR language and subjective ratings of temporal distance and probability from speakers of English, which exhibits strongly grammaticized FTR, and Dutch, which does not. Several findings went against the predictions of the previous hypothesis: Framing an FTR statement in the present (“Ellie arrives later on”) versus the future tense (“…will arrive…”) did not affect ratings of temporal distance; English speakers rated future statements as relatively more temporally proximal than Dutch speakers; and English and Dutch speakers rated future tenses as encoding high certainty, which suggests that obligatory future tense marking might result in less discounting. Additionally, compared with Dutch speakers, English speakers used more low-certainty terms in general (e.g., may) and as a function of various experimental factors. We conclude that the prior cross-linguistic observations of the link between FTR and psychological discounting may be caused by the connection between low-certainty modal structures and probability discounting, rather than future tense and temporality. (shrink)

For decisions whose consequences accrue over time, there are several possible techniques to compute total utility. One is to discount utilities of future consequences at some appropriate rate. The second is to discount per-period certainty equivalents. And the third is to compute net present values (NPVs) of various possible streams and to then apply the utility function to these net present values. We find that the best approach is to first compute NPVs of various possible income (...) streams and then take the utility of such NPVs. We show the drawbacks of other alternative models of evaluating income streams. The article discusses the advantages of the power and logarithmic forms in the modeling of time preference. These are the only forms for which utility of income and utility of consumption are strategically equivalent. Further, these forms permit the flexibility in the choice of a time period (e.g., monthly or quarterly) without modifying the utility function, thus simplifying analysis. (shrink)

In developing the basis on which climate change should be priced, I do five things. First, I review the ethical foundations for valuing future consumption relative to present consumption (i.e. social discount rates). Second, I report that the criterion for both assessing and prescribing economic policies should not be an economy's GDP, but an inclusive measure of an economy's wealth adjusted for the distribution of wealth. Third, I apply the resulting analysis to the problem of pricing carbon concentration (...) in the atmosphere. I give prominence to future uncertainties. Fourth, I show that the existing models of human behaviour on the basis of which these questions have been analysed by economists have serious deficiencies, in as much as the idea of personhood embodied in them has been built on the psychology of confirmed egotists. Fifth, I sketch the motivations of a social being and show how the altered specification of the human person affects the social price of climate change. (shrink)

Climate change policy decisions are inescapably intertwined with future generations. Even if all carbon dioxide emissions were to be stopped today, most aspects of climate change would persist for hundreds of years, thus inevitably raising questions of intergenerational justice and sustainability. -/- The chapter begins with a short overview of discount rate debate in climate economics, followed by the observation that discounting implicitly makes the assumption that natural capital is always substitutable with man-made capital. The chapter explains (...) why non-substitutability matters if we are to take intergenerational justice seriously and invest aptly in mitigation. Non-substitutability simply implies that there are some forms of capital that cannot be substituted by another, and so consumption of one cannot be compensated with additional stocks of the other. The non-substitutability of critical natural capital can be defended without empirical data about preferences or the need to view the environment as a superior good, and the argument is presented through the language of keeping options open. -/- Those alive today make decisions about what natural capital to use and what to save for future. These choices are often represented as different points in a continuum of sustainability: weak sustainability is associated with a high degree of substitutability and therefore a lot of flexibility over what capital to consume, whereas strong sustainability is more stringent on substitutability. While it may be that in economical understanding weak and strong sustainability collapse into one another, philosophically the emphasis is slightly different. The chapter discusses how normative sustainability can be supported without ignoring opportunity costs and trade-offs. (shrink)

Ecologic-economic systems tend to exhibit greater complexity than systems that are purely ecological or economic. The interactions between the two types often generates nonlinear relations that lead to various kinds of complex dynamics that complicate management and decisionmaking regarding them. Of these, forests have characteristics that lead them to have special problems not usually encountered in the management of such systems. A central one is the long time periods involved managing forests compared to most other such systems. This means that (...) the issues regarding determination of discount rates for valuing future outcomes are more important for forestry management than for many other systems. Also, forests generate a wider range of externalities than do most other ecologic-economic systems, with implications for various hierarchical levels of management. This paper considers the array of these problems as they appear for a variety of forestry management issues. (shrink)

John Broome and Duncan Foley have proposed an ingenious way to transfer benefits backwards in time, from people who are not here yet to people who will not be here in the future. Present people can crowd out conventional, and often brown, investments by issuing global climate bonds (GCBs). The debate about GCBs has focused on whether it is justified to use this financial instrument to allow future people to buy off present people for climate mitigation. In this (...) article, I ask whether it is fair to use GCBs to share the cost of a global carbon price between present and future people. My answer is that it depends on the approach used to calculate the carbon price and, of course, on the normative claims underlying the different approaches. Specifically, I argue that the internalisation principle underlying the cost-benefit approach does not justify intergenerational cost-shifting if, as in most cases, the social cost of carbon is determined using, inter alia, a social discount rate. Instead, the conservative justifications underlying a cost-effective carbon price consistent with the Paris mitigation target allow for intergenerational cost-shifting, but only to the extent of the difference (if any) between the Paris-consistent and the Pareto-efficient carbon price. (shrink)

We discuss how transgenerational communitarianism deals with public decisions involving tradeoffs between different generations’ wellbeing and having global consequences. Policies for tackling climate change are an example. Although there is a natural, evolutionary, basis for intergenerational altruism, most people lack the competencies for constituting a transgenerational community. Moreover, greater attention to future generations’ wellbeing need not substitute for collective action: a lower discount rate reflecting a stronger concern for future generations may even worsen their wellbeing. Finally, (...) in a world of irreducible value pluralism, there is no community of persons sharing moral values that can legitimize common policies for addressing global problems: only the common interest of avoiding destructive consequences may motivate collective action to face problems like climate change. (shrink)

According to the signaling theory of social norms, people comply with social norms in order to signal that they have a low discount rate for future costs and benefits and thereby that they are reliable cooperation partners. But the theory does not take into sufficient account the fact that the signaling value of social norm compliance depends on how many other people that comply, and that the signaling value at high compliance levels is rather low. Therefore, although (...) signaling can explain some compliance with social norms, it is unlikely to be the main explanation. (shrink)

Drawing a link between energy policy and sustainable development, this paper explores the normative dimensions of policy analysis that inform energy sector decision-making, and how these norms fall short of incorporating adequate considerations of sustainability. The discussion focuses on the obligations that our present generation has to conserve for future generations, the decision of which discount rate to use, and the importance of citizen-oriented preferences in economic valuation. This analysis concludes with the claim that if sustainability insights (...) are applied to conventional methods of approaching these issues, we may be better prepared to address issues that are unconventional and complex, such as those involving the production and use of energy resources. (shrink)

Ainslie’s Picoeconomics presents an ingenious theory, based on a remarkably simple basic law about the rate of discounting the value of future prospects, which explains a vast number of psychological phenomena. Hyperbolic discount rates result in changes in the ranking of interests as they get closer in time. Thus quasi-homuncular “interests” situated at different times compete within the person. In this paper I first defend the generality of scope of Ainslie’s model, which ranges over several personal and (...) subpersonal levels of psychological analysis. I raise a problem which results from the temporal relativity of assessments of value, and affects the possibility of objective values. Finally, I offer one example of a form of time-related irrationality on which Ainslie’s scheme does not seem to have a grip, namely one which relates not to a situation’s relative position in time, but to its temporal (‘progressive’ or ‘perfect’) temporal aspect. (shrink)

I argue that the use of a social discount rate to assess the consequences of climate policy is unhelpful and misleading. I consider two lines of justification for discounting: (i) ethical arguments for a "pure rate of time preference" and (ii) economic arguments that take time as a proxy for economic growth and the diminishing marginal utility of consumption. In both cases I conclude that, given the long time horizons, distinctive uncertainties, and particular costs and benefits at (...) stake in the climate context, discount rates are at best a poor proxy for the normative considerations they are meant to represent. (shrink)

This paper examines explore the issues of intergenerational equity raised by climate change. A number of different reasons have been suggested as to why current generations may legitimately favor devoting resources to contemporaries rather than to future generations. These - either individually or jointly - challenge the case for combating climate change. In this paper, I distinguish between three different kinds of reason for favoring contemporaries. I argue that none of these arguments is persuasive. My answer in each case (...) appeals to the concept of human rights. It maintains that a human rights-centered perspective to climate change enables us to address each of these reasons. (shrink)

This paper challenges the conventional wisdom dominating the social sciences and philosophy regarding temporal discounting, the practice of discounting the value of future utility when making decisions. Although there are sharp disagreements about temporal discounting, a kind of standard model has arisen, one that begins with a normative standard about how we should make intertemporal comparisons of utility. This standard demands that in so far as one is rational one discounts utilities at future times with an exponential (...) class='Hi'>discount function. Tracing the justification for this standard through economics, philosophy and psychology, I’ll make what I believe is the best case one can for it, showing how a non-arbitrariness assumption and a dominance argument together imply that discounting ought to be exponential. Ultimately, however, I don’t find the case compelling. Non-exponential temporal discounting is often rational. If this is correct, Instead of trying to ‘fix’ non-exponential discounting because it is irrational and associated with negative life outcomes, we might instead focus attention on why the conditions obtain that make such discounting rational. (shrink)

When disability-adjusted life years are used to measure the burden of disease on a population in a time interval, they can be calculated in several different ways: from an incidence, pure prevalence, or hybrid perspective. I show that these calculation methods are not equivalent and discuss some of the formal difficulties each method faces. I show that if we don’t discount the value of future health, there is a sense in which the choice of calculation method is a (...) mere question of accounting. Such questions can be important, but they don’t raise deep theoretical concerns. If we do discount, however, choice of calculation method can change the relative burden attributed to different conditions over time. I conclude by recommending that studies involving disability-adjusted life years be explicit in noting what calculation method is being employed and in explaining why that calculation method has been chosen. (shrink)

The best justification of time-discounting is roughly that it is rational to care less about your more distant future because there is less of you around to have it. I argue that the standard version of this argument, which treats both psychological continuity and psychological connectedness as reasons to care about your future, can only rationalize an irrational—because exploitable—form of future discounting.

The social discount rate typically consists of two components: differences in the marginal utility of consumption across time, and the pure time preference rate as applied to cardinal utility. Within this framework, intragenerational and intergenerational time preference rates must be the same, if we are to avoid strongly counterintuitive results. Both rates, however, can be plausibly equal at zero rather than at a positive level; pure time preference should not necessarily be applied to cardinal utility, even when (...) we apply it to goods. The other component of the discount rate, the marginal utility of consumption, is appropriate only for very small changes in individual wealth; this assumption does not match most of the intergenerational scenarios in question. I conclude that economics does not provide a prima facie case for a positive rate of intergenerational discount for most policy issues. (shrink)

Behavioral science has long been puzzled by the experience of temptation, the resulting impulsiveness, and the variably successful control of this impulsiveness. In conventional theories, a governing faculty like the ego evaluates future choices consistently over time, discounting their value for delay exponentially, that is, by a constant rate; impulses arise when this ego is confronted by a conditioned appetite. Breakdown of Will presents evidence that contradicts this model. Both people and nonhuman animals spontaneously discount the value (...) of expected events in a curve where value is divided approximately by expected delay, a hyperbolic form that is more bowed than the rational, exponential curve. With hyperbolic discounting, options that pay off quickly will be temporarily preferred to richer but slower-paying alternatives, a phenomenon that, over periods from minutes to days, can account for impulsive behaviors, and over periods of fractional seconds can account for involuntary behaviors. Contradictory reward-getting processes can in effect bargain with each other, and stable preferences can be established by the perception of recurrent choices as test cases in recurrent intertemporal prisoner's dilemmas. The resulting motivational pattern resembles traditional descriptions of the will, as well as of compulsive phenomena that can now be seen as side-effects of will: over-concern with precedent, intractable but circumscribed failures of self-control, a motivated unconscious, and an inability to exploit emotional rewards. Hyperbolic curves also suggest a means of reducing classical conditioning to motivated choice, the last necessary step for modeling many involuntary processes like emotion and appetite as reward-seeking behaviors; such modeling, in turn, provides a rationale for empathic reward and the “construction” of reality. Key Words: altruism ; appetite; behavioral economics; classical conditioning; compulsions; dynamic inconsistency; emotions; empathy; freedom of will; hyperbolic discounting; impulsiveness; intertemporal bargaining; self-control; social construction; volition; weakness of will. (shrink)