Consumption, Risk, and Prioritarianism
24 Pages Posted: 12 Oct 2014 Last revised: 20 Dec 2014
Date Written: October 4, 2014
This paper examines consumption decisions under risk assuming a prioritarian social welfare function, namely, a concave transformation of individual utility functions. Under standard assumptions, there is always more current consumption under ex ante prioritarianism than under utilitarianism. Thus, a concern for equity (in the ex ante prioritarian sense) means less concern for the risky future. In contrast, there is usually less current consumption under ex post prioritarianism than under utilitarianism. The paper concludes with a discussion of the robustness of these results to learning and to other forms of prioritarian social welfare functions.
Keywords: Precautionary savings, utilitarianism, prioritarianism, discounting, climate change
JEL Classification: D81, I31, E21
Suggested Citation: Suggested Citation