Free Content Alerts
25 May 2013
About World Economics
Trial sign up
Submit an article
Competition & regulation
Country & regional studies
Crime & corruption
Growth & development
Innovation & technology
International trade & investment
Knowledge, intellectual property
Labour, demographics, households
Measurement & statistics
Sport, leisure, the arts
Ethics of the Discount Rate in the Stern Review on the Economics of Climate Change
Volume 8, Number 1, 2007
, pages 187 - 210
Any comparison of the costs and benefits of climate change is dominated by the chosen discount rate. But, although the Stern Review emphasises the ethical nature of the parameters entering into its choice of a relatively low discount rate, its discussion of the ‘pure time preference’ parameter is unbalanced. In particular, no consideration is given to the role of ‘agent-relative ethics’, which (i) has a wellestablished philosophical pedigree going back to David Hume; (ii) is likely to correspond closely to world-wide public attitudes towards intergenerational welfare; and (iii) would entail discounting a unit of welfare accruing to future generations compared to an equal unit accruing to people alive today at a positive rate. The authors also discuss the other ethical parameter upon which the discount rate depends, namely the elasticity of marginal utility with respect to consumption. In the conventional model, this simultaneously reflects different aspects of inequality aversion as well as risk aversion, which complicates its interpretation. Finally, they discuss the divergence between market rates of discount and the low rate chosen in the Review, and the limitations—on the one hand—on the normative significance of market rates, as well as the danger—on the other hand—of relying on rates chosen by elites or philosopher kings.
CALL FOR PAPERS
World Economics Journal is
calling for the submission of papers
to the Managing Editor on economic, statistical and accounting issues connected with the production, use and utility of economic data.
Sign up for
, data and analysis from World Economics.
FREE CONTENT ALERTS
To subscribe to our free 'Content Alerts' please fill in your details below:
Copyright © 2013 Economic and Financial Publishing Ltd. All rights reserved.