Intergenerational equity and the discount rate for cost-benefit analysis

Jean-François Mertens and Anna Rubinchik ()

No 2006091, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Current Office of Management and Budget (OMB) guidelines use the interest rate as a basis for the discount rate, and have nothing to say about an intergenerationally fair discount rate. We derive this discount rate by differentiating a social welfare function with respect to perturbations in individual endowments (which induce perturbations of equilibria) in an overlapping generations model with exogenous growth. A traditional utilitarian approach leads to too high values, and in a wide range, while Relative Utilitarianism implies it equals the growth rate of real per-capita consumption, independent of the interest rate. The differentiation is based on a novel method, applicable to arbitrary policy variations, and that reveals a deep and very general property of exogenous growth models

Keywords: social welfare function; social welfare functional; overlapping generations; exogenous growth; intergenerational fairness; cost-benefit analysis; social discount rate; utilitarianism; relative utilitarianism (search for similar items in EconPapers)
JEL-codes: D61 D63 H43 (search for similar items in EconPapers)
Date: 2006-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://sites.uclouvain.be/core/publications/coredp/coredp2006.html (text/html)

Related works:
Working Paper: Intergenerational equity and the discount rate for cost-benefit analysis (2008)
Working Paper: Intergenerational equity and the discount rate for cost-benefit analysis (2008)
Working Paper: Intergenerational equity and the discount rate for cost-benefit analysis (2008)
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:cor:louvco:2006091

Access Statistics for this paper

More papers in LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().