Econometrica: Sep 2018, Volume 86, Issue 5
Social Discounting and Intergenerational Pareto
Tangren Feng, Shaowei Ke
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.
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Supplement to "Social Discounting and Intergenerational Pareto"
This supplement consists of four parts: (i) the robustness of findings in the main paper with respect to several main assumptions, (ii) an alternative nterpretation of intergenerational Pareto and its implication on quasi-hyperbolic discounting, (iii) a result with forward and backward individual exponential discounting, and (iv) a discussion of the choice domain of the main paper. The supplement uses definitions and notations from the main paper.