Discounting and Intergenerational Equity

A reconsideration of the appropriate use of discounting in decision making for the far future. Paul Portney and John Weyant have assembled a group of colleagues to re-examine the purpose, ethical implications and application of discounting in the light of research and policy concerns such as climate change and nuclear waste. The contributors include Kenneth Arrow, Scott Barrett, David Bradford, Partha Dasgupta, Raymond Kopp, W. David Montgomery, Alan Manne, Thomas Schelling and V. Kerry Smith.

The full effects of decisions made today about many environmental policies -including climate change and nuclear waste- will not be felt for many years. For issues with long-term ramifications, analysts often employ discount rates to compare present and future costs and benefits. This is reasonable, and discounting has become a procedure that raises few objections. But are the methods appropriate for measuring costs and benefits for decisions that will have impacts 20 to 30 years from now the right ones to employ for a future that lies 200 to 300 years in the future? This landmark book argues that methods reasonable for measuring gains and losses for a generation into the future may not be appropriate when applied to a longer span of time. Paul Portney and John Weyant have assembled some of the world's foremost economists to reconsider the purpose, ethical implications, and application of discounting in light of recent research and current policy concerns. These experts note reasons why conventional calculations involved in discounting are undermined when considering costs and benefits in the distant future, including uncertainty about the values and preferences of future generations, and uncertainties about available technologies. Rather than simply disassemble current methodologies, the contributors examine innovations that will make discounting a more compelling tool for policy choices that influence the distant future. They discuss the combination of a high shout-term with a low long-term diescount rate, explore discounting according to more than one set of anticipated preferences for the future, and outline alternatives involving simultaneous consideration of valuation, discounting and political acceptability.

Foreword Robert M. Solow 1. Introduction Paul R. Portney and John P. Weyant 2. Discounting, Morality, and Gaming Kenneth J. Arrow 3. 'Just Keep Discounting, But...' Martin L. Weitzman 4. Reconciling Philosophy and Economics in Long-Term Discounting: Comments on Arrow and Weitzman Michael A. Toman 5. On the Uses of Benefit-Cost Reasoning in Choosing Policy toward Global Climate Change David F. Bradford 6. A Market-Based Discount Rate: Comments on Bradford W. David Montgomery 7. Intergenerational Equity, Social Discount Rates, and Global Warming Partha Dasgupta, Karl-G ran M ler, and Scott Barrett 8. Substitution and Social Discount Rates: Comments on Dasgupta, M ler, and Barrett V. Kerry Smith 9. Mock Referenda for Intergenerational Decisionmaking Raymond J. Kopp and Paul R. Portney 10. Intergenerational Discounting Thomas C. Schelling 11. Intergenerational Ethics, Efficiency, and Commitment: Comments on Schelling and Kopp and Portney Jerome Rothenberg 12. Equity, Efficiency, and Discounting Alan S. Manne 13. Discounting for the Very Long Term William R. Cline 14. Models and Discount Rates: Comments on Manne and Cline Shantayanan Devarajan 15. Discounting and Public Policies That Affect the Distant Future William D. Nordhaus 16. The Implications of Hyperbolic Discounting for Project Evaluation Maureen Cropper and David Laibson 17. Analysis for Intergenerational Decisionmaking Robert C. Lind Index

Paul R. Portney is president and a senior fellow of Resources for the Future. John P. Weyant is director of the Energy Modeling Forum at Stanford University.