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Social discounting, inequality aversion, and the environment

Frank Venmans and Ben Groom

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Measures of inequality aversion are elicited using hypothetical decision tasks. The tasks require an assessment of projects in the presence of environmental inequalities across space and time. We also test the effect of different environmental domains (air pollution, recreational forest and soil fertility) and contextual framings (gain/loss, within/between regions and present–future/past–present inter-temporal trade-offs). Estimated mean inequality aversion is higher in the intra-temporal framing (an elasticity of 2.9), than in the inter-temporal framing with either negative (2.0) or positive (1.4) growth in environmental quality. Differences across environmental domains exist but are less pronounced. Similar results hold for pure time preference. Losses are associated with a lower pure rate of time preference but higher inequality aversion compared to gains. The results indicate how domain-specific ‘dual’ discount rates or rather changing relative shadow prices for the environment might be calibrated. Yet, seen as an exercise in empirical social choice, the context dependent results reject the classical Utilitarian formulation of a single Ramsey Rule.

Keywords: social discount rate; inequality; inequality aversion; cost benefit analysis; Ramsey rule; ES/R009708/1; UKRI block grant (search for similar items in EconPapers)
JEL-codes: D31 D61 H43 (search for similar items in EconPapers)
Date: 2021-09-01
New Economics Papers: this item is included in nep-env, nep-isf and nep-upt
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Published in Journal of Environmental Economics and Management, 1, September, 2021, 109. ISSN: 0095-0696

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