A New Look into the Determinants of the Ecological Discount Rate: Disentangling Social Preferences

2012 ◽  
Vol 12 (1) ◽  
Author(s):  
Luciana Echazu ◽  
Diego Nocetti ◽  
William T. Smith
Keyword(s):  
Term Structure ◽  
Discount Rate ◽  
Environmental Quality ◽  
Social Preferences ◽  
Inequality Aversion ◽  
The Social ◽  
Representative Consumer ◽  
Change Mitigation ◽  
Over Time

Abstract How should changes in environmental quality occurring in the future be discounted? To answer this question we consider a model of “ecological discounting”, where the representative consumer has a utility function defined over two attributes, consumption and environmental quality, which evolve stochastically over time. We characterize the determinants of the social discount rate and its behavior over time using a preference structure that disentangles attitudes towards intertemporal inequality, attitudes towards risk, and tastes over consumption and environmental quality. We show that the degree of substitutability between consumption and environmental quality, the degree of risk aversion, the degree of inequality aversion, and the rate at which these attitudes change as natural and man-made resources evolve over time are all important aspects of the ecological discount rate and its term structure. Our analysis suggests that over medium and long term horizons the ecological discount rate should be below the rate of time preference, supporting recent proposals for immediate action towards climate change mitigation.

scholarly journals Discounting and Climate Policy

2020 ◽  
Author(s):  
Frederick van der Ploeg
Keyword(s):  
Discount Rate ◽  
Carbon Tax ◽  
Relative Price ◽  
Inequality Aversion ◽  
Social Discount Rate ◽  
Policy Makers ◽  
Social Rate ◽  
The Social ◽  
Intergenerational Inequality ◽  
Over Time

The social rate of discount is a crucial driver of the social cost of carbon (SCC), that is, the expected present discounted value of marginal damages resulting from emitting one ton of carbon today. Policy makers should set carbon prices to the SCC using a carbon tax or a competitive permits market. The social discount rate is lower and the SCC higher if policy makers are more patient and if future generations are less affluent and policy makers care about intergenerational inequality. Uncertainty about the future rate of growth of the economy and emissions and the risk of macroeconomic disasters (tail risks) also depress the social discount rate and boost the SCC provided intergenerational inequality aversion is high. Various reasons (e.g., autocorrelation in the economic growth rate or the idea that a decreasing certainty-equivalent discount rate results from a discount rate with a distribution that is constant over time) are discussed for why the social discount rate is likely to decline over time. A declining social discount rate also emerges if account is taken from the relative price effects resulting from different growth rates for ecosystem services and of labor in efficiency units. The market-based asset pricing approach to carbon pricing is contrasted with a more ethical approach to policy making. Some suggestions for further research are offered.

scholarly journals Discounting Disentangled

2018 ◽  
Vol 10 (4) ◽  
pp. 109-134 ◽  
Author(s):  
Moritz A. Drupp ◽  
Mark C. Freeman ◽  
Ben Groom ◽  
Frikk Nesje
Keyword(s):  
Discount Rate ◽  
Time Preference ◽  
Wealth Effect ◽  
Social Discount Rate ◽  
Economic Values ◽  
Public Projects ◽  
Highly Sensitive ◽  
The Social ◽  
Ramsey Rule

The economic values of investing in long-term public projects are highly sensitive to the social discount rate (SDR). We surveyed over 200 experts to disentangle disagreement on the risk-free SDR into its component parts, including pure time preference, the wealth effect, and return to capital. We show that the majority of experts do not follow the simple Ramsey Rule, a widely used theoretical discounting framework, when recommending SDRs. Despite disagreement on discounting procedures and point values, we obtain a surprising degree of consensus among experts, with more than three-quarters finding the median risk-free SDR of 2 percent acceptable. (JEL C83, D61, D82, H43, Q58)

History and the Study of Inequality

2020 ◽  
Vol 51 (3) ◽  
pp. 429-441
Author(s):  
Herbert S. Klein
Keyword(s):  
Social Sciences ◽  
Social Economic ◽  
Historical Analysis ◽  
First Century ◽  
Global Inequality ◽  
Historical Factors ◽  
The Social ◽  
Oxford Group ◽  
Over Time

Economic inequality has become one of the most important themes in the social sciences. The debate has revolved around two basic models. Was Kuznets correct in his prediction that inequality declines with economic growth, or was Piketty, along with others in the Berkeley/Paris/Oxford group, correct to counter that capitalism without severe constraints inevitably leads to increasing inequality? The resolution will depend on long-term historical analysis. In Global Inequality, Milanovic proposed new models to analyze the social, economic, political, and historical factors that influence changes in inequality over time and space. In Capitalism, Alone, he changes direction to examine what patterns of capitalism and inequality will look like in the twenty-first century and beyond, as well as how inequality might be reduced without violence.

Discounting under Risk

2021 ◽  
pp. 67-89
Author(s):  
Maddalena Ferranna
Keyword(s):  
Climate Change ◽  
Discount Rate ◽  
Public Policies ◽  
Social Discount Rate ◽  
Climate Policies ◽  
The Social ◽  
Ramsey Rule ◽  
Climate Damages

The debate on the economics of climate change has focused primarily on the choice of the social discount rate, which plays a key role in determining the desirability of climate policies given the long-term impacts of climate damages. Discounted utilitarianism and the Ramsey Rule dominate the debate on discounting. The chapter examines the appropriateness of the utilitarian framework for evaluating public policies. More specifically, it focuses on the risky dimension of climate change, and on the failure of utilitarianism in expressing both concerns for the distribution of risks across the population and concerns for the occurrence of catastrophic outcomes. The chapter shows how a shift to the prioritarian paradigm is able to capture those types of concerns, and briefly sketches the main implications for the choice of the social discount rate.

Discounting and intragenerational equity

2017 ◽  
Vol 23 (1) ◽  
pp. 19-36 ◽  
Author(s):  
Johannes Emmerling
Keyword(s):  
Discount Rate ◽  
Analytical Formula ◽  
The United States ◽  
The Other ◽  
Social Discount Rate ◽  
The Social ◽  
Intragenerational Equity ◽  
The One ◽  
Over Time ◽  
Ramsey Rule

AbstractWe study the social discount rate, taking into account inequality within generations, that is, across countries or individuals. We show that if inequality decreases over time, the social discount rate should be lower than the one obtained by the standard Ramsey rule under certain but reasonable conditions. Applied to the global discount rate and due to the projected convergence across countries, this implies that the inequality adjusted discount rate should be about twice as high as the standard Ramsey rule predicts. For individual countries on the other hand, where inequality tends to increase over time, the effect goes in the other direction. For the United States for instance, this inequality effect leads to a reduction of the social discount rate by about 0.5 to 1 percentage points. We also present an analytical formula for the social discount rate allowing us to disentangle inequality, risk, and intertemporal fluctuation aversion.

A Star Is Born: The Relationship Between Performance and Achieving Status Through Certification Contests in the Context of Equity Analysts

2022 ◽  
Author(s):  
Eugene Taeha Paik ◽  
Timothy G. Pollock ◽  
Steven Boivie ◽  
Donald Lange ◽  
Peggy M. Lee
Keyword(s):  
High Status ◽  
Short Term ◽  
Equity Analysts ◽  
Subsequent Performance ◽  
The Social ◽  
And Performance ◽  
The Relationship ◽  
Status Position ◽  
Over Time

We investigate how the relationship between status and performance decouples over time by addressing two questions: (1) how performance affects the likelihood that an actor achieves high status and (2) how achieving high status affects the actor’s subsequent performance. In doing so, we focus on the role repeated certification contests play, where evaluators assess actors’ performance along particular dimensions and confer high status on the contest winners. Using the context of sell-side (brokerage) equity analysts and the “All-Star” list from Institutional Investor magazine, we first investigate whether analysts who make the All-Star list are more likely to produce accurate and/or independent forecasts. Then, we investigate analyst performance after recent and multiple wins. Our results demonstrate the decoupling of status and performance over time and the roles played by both the high-status actor and the social evaluators conferring their status. Whereas analyst performance increases the likelihood of being designated an All-Star, recent and multiple All-Star designations differentially affect both how subsequent performance is assessed, and how the All-Star analysts subsequently perform. In the short term, achieving high status can increase performance and solidify an analyst’s status position; however, in the long term, it can lead to lower performance and eventually result in status loss, which further erodes performance.

Book Reviews

2013 ◽  
Vol 51 (3) ◽  
pp. 894-897
Keyword(s):  
Term Structure ◽  
Discount Rate ◽  
Parametric Uncertainty ◽  
Fat Tails ◽  
Social Discount Rate ◽  
The Social ◽  
The University ◽  
Alternative Decision ◽  
Ramsey Rule

Explores recent advances in the field of the social discount rate and considers how society should value the future in this context. Discusses three ways to determine the discount rate; the Ramsey rule; extending the Ramsey rule to an uncertain economic growth; random walk and mean-reversion; Markov switches and extreme events; parametric uncertainty and fat tails; the Weitzman argument; a theory of the decreasing term structure of discount rates; inequalities; discounting nonmonetary benefits; alternative decision criteria; evaluation of risky projects; the option value of uncertain projects; and evaluation of nonmarginal projects. Gollier is Professor of Economics at the University of Toulouse and Director of the Toulouse School of Economics.

Ladders and Bushes: The Problem of Caseloads and Studying Court Activities over Time

1984 ◽  
Vol 9 (4) ◽  
pp. 751-795 ◽  
Author(s):  
Stephen Daniels
Keyword(s):  
Social Development ◽  
Development Model ◽  
Social Development Model ◽  
The Past ◽  
The Social ◽  
Single Pattern ◽  
Long Term Trends ◽  
Open Question ◽  
Over Time

The “litigation explosion” has been a frequent topic of concern in both academic circles and the popular press. This idea draws its polemical power from the assumption that litigation rates were lower in the past. But we presently know little about long-term trends in court activity. This article is a critical review of the existing literature on long-term litigation trends and the social development model which scholars have posited to explain changes in litigation patterns. Whether courts are indeed facing imminent crisis because of an explosion is still very much an open question; the extant literature offers no proof of an explosion. The available data do suggest, however, that previous studies may have been overly optimistic in expecting litigation trends to follow any single pattern. The questions about litigation rates will remain open until we are able to gain a fuller understanding of the trends in court activity over time.

Sociological Congruence and the Shaping of Recorded Jazz

Shaping Jazz ◽  
2013 ◽  
Author(s):  
Damon J. Phillips
Keyword(s):  
Social Structure ◽  
Common Point ◽  
Early Years ◽  
The Social ◽  
Over Time ◽  
Point Of Reference

This introductory chapter explains that the book examines the early years of the market for jazz in order to understand why some tunes had long-term appeal while others did not, and how the market boundaries of jazz evolved as a part of this process. Using empirical puzzles and focusing mostly on the period 1917–1933, the book investigates why some songs are re-recorded by many musicians over time while others receive no such following. The book draws on sociological congruence as a mechanism to explain how the context of production affects the appeal of jazz recordings. It shows that jazz has been influenced by the social structure of the geography and producing organizations. A market for jazz could not have formed, flourished, and maintained legitimacy without a smaller set of tunes to serve as a common point of reference by musicians, record labels and companies, consumers, and critics.

scholarly journals Alternative carbon price trajectories can avoid excessive carbon removal

2021 ◽  
Vol 12 (1) ◽  
Author(s):  
Jessica Strefler ◽  
Elmar Kriegler ◽  
Nico Bauer ◽  
Gunnar Luderer ◽  
Robert C. Pietzcker ◽  
...  
Keyword(s):  
Climate Change ◽  
Climate Change Mitigation ◽  
Carbon Budget ◽  
Carbon Price ◽  
Carbon Neutrality ◽  
In The Beginning ◽  
Carbon Prices ◽  
Change Mitigation ◽  
Over Time

AbstractThe large majority of climate change mitigation scenarios that hold warming below 2 °C show high deployment of carbon dioxide removal (CDR), resulting in a peak-and-decline behavior in global temperature. This is driven by the assumption of an exponentially increasing carbon price trajectory which is perceived to be economically optimal for meeting a carbon budget. However, this optimality relies on the assumption that a finite carbon budget associated with a temperature target is filled up steadily over time. The availability of net carbon removals invalidates this assumption and therefore a different carbon price trajectory should be chosen. We show how the optimal carbon price path for remaining well below 2 °C limits CDR demand and analyze requirements for constructing alternatives, which may be easier to implement in reality. We show that warming can be held at well below 2 °C at much lower long-term economic effort and lower CDR deployment and therefore lower risks if carbon prices are high enough in the beginning to ensure target compliance, but increase at a lower rate after carbon neutrality has been reached.

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