Discounting, Beyond Utilitarianism
34 Pages Posted: 8 Feb 2014
Date Written: January 31, 2014
Abstract
Discounted utilitarianism and the Ramsey equation prevail in the debate on the discount rate on consumption. The utility discount rate is assumed to be constant and to reflect either the uncertainty about the existence of future generations or a pure preference for the present. We question the unique status of discounted utilitarianism and discuss the implications of alternative criteria addressing the key issues of equity in risky situations and variable population. To do so, we first characterize a class of intertemporal social objectives, named Expected Equally Distributed Equivalent (EEDE) criteria, which embody reasonable ethical principles. The class is more flexible in terms of population ethics and it disentangles risk aversion and inequality aversion. We show that these social objectives imply interesting modifications of the Ramsey formula, and shed new light on Weitzman's "dismal theorem".
Keywords: discounted utilitarianism, social discounting
JEL Classification: D63
Suggested Citation: Suggested Citation