Mertens, Jean-François
[UCL]
Rubinchik, Anna
Current Office of Management and Budget (OMB) guidelines use the interest rate as a basis for the discount rate, and have nothing to say about an intergenerationally fair discount rate. We derive this discount rate by differentiating a social welfare function with respect to perturbations in individual endowments (which induce perturbations of equilibria) in an overlapping generations model with exogenous growth. A traditional utilitarian approach leads to too high values, and in a wide range, while Relative Utilitarianism implies it equals the growth rate of real per-capita consumption, independent of the interest rate. The differentiation is based on a novel method, applicable to arbitrary policy variations, and that reveals a deep and very general property of exogenous growth models
Bibliographic reference |
Mertens, Jean-François ; Rubinchik, Anna. Intergenerational equity and the discount rate for cost-benefit analysis. CORE Discussion Papers ; 2006/91 (2006) |
Permanent URL |
http://hdl.handle.net/2078.1/4544 |