Social Discounting and Long-Run Discounting

Assistant Professor at Department of Economics, University of  Michigan. Prof. Ke holds Ph. D. of Economics from Princeton University. 

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The most critical issue in evaluating policies and projects that a¤ect generations of individuals is the choice of social discount rate. This paper shows that there exist social discount rates such that the planner can simultaneously be (i) time-consistent;(ii) intergenerationally Pareto? i.e., if all individuals from all generations prefer one policy/project to another, the planner agrees; and (iii) strongly non-dictatorial? i.e., no individual from any generation is ignored. Moreover, to satisfy (i)?(iii), if the time horizon is long enough, it is generically su¢ cient and necessary for social discounting to be more patient than the most patient individual long-run discounting, in which an individual?s long-run discount rate is his asymptotic average and relative discount rate.