Generation adjusted discounting in long-term decision-making

Stefan Bayer

No 187, Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics

Abstract: This paper analyses the choice of an inter-generational discount rate as well as a method for inter-generational discounting. It is shown that the pure time preference rate is irrelevant for inter-generational comparisons. However, the application of the growth time preference rate - with respect to consumption - is a necessary condition for inter-temporal utility maximisation. Opportunity costs should be taken into account not by discounting with their internal rate of return, but by calculating consumption equivalents (shadow prices of capital). Thus, an intergenerational discount rate has to be based on the time preference approach. These considerations lead us to the formulation of a new discounting technique, Generation Adjusted Discounting (GAD). It takes into account intra- as well as inter-generational aspects. Compared with conventional discounting techniques, we find that the present values obtained by using the GAD noticeably exceed those derived conventionally.

Keywords: generation-adjusted discounting; intergenerational discounting; intragenerational discounting; opportunity cost rate; time preference rate; long-term decision making (search for similar items in EconPapers)
Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/47528/1/31410108X.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuedps:187

Access Statistics for this paper

More papers in Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().