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Intergenerational and international discounting.

T C Schelling1

  • 1School of Public Affairs, University of Maryland, College Park, MD 20742, USA. ts57@umail.umd.edu

Risk Analysis : an Official Publication of the Society for Risk Analysis
|April 21, 2001
PubMed
Summary

Discount rates for future generations are complex. Greenhouse gas abatement costs are borne by developed nations, while benefits accrue to developing ones, reframing the issue as foreign aid.

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Area of Science:

  • Environmental economics
  • Intergenerational equity
  • Climate change policy

Background:

  • Discount rates typically combine pure time preference and declining marginal utility.
  • Greenhouse gas abatement costs and benefits are unevenly distributed across generations and nations.
  • Current discount rate models may not adequately address intergenerational transfers.

Purpose of the Study:

  • To re-evaluate the application of discount rates for future generations in the context of climate change.
  • To analyze the distributional implications of greenhouse gas abatement policies.
  • To question the relevance of pure time preference in intergenerational consumption decisions.

Main Methods:

  • Conceptual analysis of discount rate components.
  • Economic modeling of intergenerational resource allocation.
  • Comparative analysis of climate aid versus direct foreign aid.

Main Results:

  • Pure time preference is irrelevant for intergenerational consumption when transfers are from richer to poorer.
  • Greenhouse gas abatement costs borne by developed nations benefit future, poorer populations.
  • Consumption transfers over time exhibit declining marginal utility for recipients.

Conclusions:

  • Intergenerational climate abatement should be viewed as a foreign aid program.
  • Climate aid must compete with direct foreign aid for effectiveness.
  • Policies should prioritize direct benefits to the currently poor over future, wealthier descendants.

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