Social Discounting and Intergenerational Pareto

Tangren Feng and Shaowei Ke

Econometrica, 2018, vol. 86, issue 5, 1537-1567

Abstract: The most critical issue in evaluating policies and projects that affect generations of individuals is the choice of social discount rate. This paper shows that there exist social discount rates such that the planner can simultaneously be (i) an exponential discounting expected utility maximizer; (ii) intergenerationally Pareto—that is, if all individuals from all generations prefer one policy/project to another, the planner agrees; and (iii) strongly non‐dictatorial—that is, no individual from any generation is ignored. Moreover, to satisfy (i)–(iii), if the time horizon is long enough, it is generically sufficient and necessary for social discounting to be more patient than the most patient individual's long‐run discounting, independent of the social risk attitude.

Date: 2018
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