Intergenerational transfers and the social discount rate

Conference · Sat Aug 01 00:00:00 EDT 1992

OSTI ID:6778985

Howarth, R B; Norgaard, R B

This paper investigates the relationship between intergenerational asset transfers and the choice of the discount rate for use in cost-benefit analysis in a model of a competitive overlapping generations economy constrained by a socially managed exhaustible resource. Provided that there are no distortions in capital markets and that all agents hold perfect foresight, cost-benefit techniques will result in a Pareto efficient resource allocation if the discount rate is set equal to the market rate of interest. But since the path of the interest rate depends on the level of intergenerational transfers, cost-benefit techniques do not ensure a socially desirable distribution of welfare between generations; a social optimum will result only if intergenerational transfers are properly chosen and enforced. Decentralized private altruism may result in intergenerational transfers that both present and future individuals would agree are too small if members of the present generation attach positive weight to the general welfare of future generations, not simply their personal descendants. In a world where intergenerational transfers are non-optimal, second-best policy-making may imply a constrained optimum that is inefficient. Together, these findings suggest that cost-benefit analysis is at best a partial criterion to policy formulation that should be used only in conjunction with ethical principles that define the proper distribution of welfare between present and future generations.

• Research Organization: Lawrence Berkeley Lab., CA (United States)
• Sponsoring Organization: USDOE; SEI; USDOE, Washington, DC (United States); Stockholm Environment Inst. (Sweden)
• DOE Contract Number: AC03-76SF00098
• OSTI ID: 6778985
• Report Number(s): LBL-32667; CONF-9208193-1; ON: DE93004781
• Resource Relation: Conference: 2. international Society for Ecological Economics conference, Stockholm (Sweden), 3-6 Aug 1992
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING
POLICY AND ECONOMY
ADULTS
ECONOMIC ANALYSIS
CHILDREN
INTEREST RATE
SOCIAL IMPACT
COMPETITION
CONSTRAINTS
COST BENEFIT ANALYSIS
ECONOMICS
FINANCING
MATHEMATICS
PARTIAL DIFFERENTIAL EQUATIONS
RESOURCE MANAGEMENT
SOCIO-ECONOMIC FACTORS
TAXES
AGE GROUPS
DIFFERENTIAL EQUATIONS
EQUATIONS
INSTITUTIONAL FACTORS
MANAGEMENT
290201* - Energy Planning & Policy- Economics- (1992-)