Analysis of Discount Rate methodologies

1. INTERGENERATIONAL EQUITY AND
SOCIAL DISCOUNT RATES – A
REVIEW OF THE RECENT LITERATURE
Dr. Julian Roche
Hull University, May 26 2015

2. History of the Debate
• Bentham 1789 and Sidgwick 1874
• Ramsay, 1928
• Hotelling 1931
• Koopmans, 1960
• Tulloch 1964, Golding 1972
• Solow, 1974
• Chichilnisky 1993, Heal 1997
• Parfit – Theory X, 1984
• Climate change models: Cline 1992, Broome 1995

3. Theoretical and Practical
Developments in the 21st Century
• Key macro changes and their influence
• Influence of the Stern Report
• Key theoretical interventions e.g gamma
discounting (Weitzman 2001)
• Ethicists vs Positivists
• Widespread recognition by environmentalists

4. An Overview of the Debate

5. Losing more?

6. Stern vs Nordhaus

7. Ethicists Positivists
Cynics Realists
How the debate really shapes up

8. Realists Worldwide
Source: Emmerling 2007

9. Declining Discount Rates
US EPA now also an adherent

10. Stabilisation economics
Source: Stern 2006

11. Malthus, 1820

12. And what happened?

13. Jevons, 1865

14. Pigou 1932
• “We cut an hour off the
time of our passage to
New York at the cost of
preventing, perhaps,
one of our descendants
from making the
passage at all”
(1932:28)

15. And what happened?

16. And what happened?

17. Meadows, 1972

18. And what is happening

19. Stern, 2007

20. And what may happen

21. Conclusion
• Are we utilitarians? If so, of what sort?
• How much uncertainty do we have?
• Entrenched camps about discounting
• Declining discount rates now gaining ground
• Ideally we would discount for risk, not time – I
say.
• The private sector marches on regardless with
only regulation to stop it