Valuing the Future: Intergenerational Discounting, its Problems, and a Modest Proposal

Abstract:     
This article examine how intergenerational investment projects, such as, investments related to global warming, natural resources, energy, etc., should be undertaken. In particular, it examines two popular prescriptions: 1) In making intergenerational investments, policymakers should use a zero discount rate. 2) In making intergenerational investments, policymakers should use the market rate. The article shows that neither of these prescriptions are correct. Indeed, the article suggests that using present-value discounting at all is extremely problematic. Instead, the best we can probably do is to is to adopt a simple algorithm: set certain minimal goals for future generations: clean air, potable water, sufficient energy supplies, a nontoxic environment, etc., and then analyze the most cost-effective way of achieving those goals.

Number of Pages in PDF File: 27

Keywords: intergenerational discounting, investment finance, global present value utilitarianism, social welfare

JEL Classification: D63, D90, Q38

working papers series