Conference Agenda

To account for lower growth of non-market ecosystem services vis-à-vis market consumption goods, governments increasingly consider differentiated discount rates for public project appraisal. In lack of empirical evidence, they so far rely on ad-hoc assumptions for calibration. To fill this gap, we conduct a laboratory choice experiment to provide a first full specification of the canonical dual discounting model for consumption and the environment. We find that intertemporal inequality aversion is above unity for consumption, and below unity for ecosystem services. Importantly, we elicit cross-elasticities of marginal utility between the two goods for the first time, finding small positive values that imply a weak substitutability between market consumption and non-market ecosystem services. For recent growth projections, our estimates indicate that the social discount rate for the environment is around 1.5 percentage points lower than for consumption. While the latter is well approximated by the conventional simple Ramsey rule, substantial errors in the valuation of environmental costs and benefits will arise from guidelines that do not feature differentiated discount rates or adequate relative price adjustments.

Egalitarianism and undiscounted utilitarianism have been widely studied as approaches to intergenerational equity. However, discounted utilitarianism remains central in normative macroeconomics despite longstanding concerns about its ethical justification.

This paper develops a procedural foundation for the social discount factor within discounted utilitarianism. Building on Binmore’s (2005) social contract approach, we define a procedurally intergenerationally equitable (PIE) path as the outcome of intergenerational bargaining. We then identify the discount factor under which a Ramsey model replicates this path and interpret it as an intergenerationally justifiable (IJ) discount factor.

Using tractable dynamic models, we show that the IJ discount factor is closely linked to the economic environment. In a benchmark case, the corresponding discount rate coincides with the output elasticity of capital. We further examine a non overlapping-generations model with intergenerational altruism and an overlapping-generations model with individual time preferences, and characterize how these factors affect the IJ discount factor.

How does present bias shape economic growth, the creation of ideas, natural resource extraction, and pollution? We develop an endogenous growth model with exhaustible resources and pollution, where households have tendencies to procrastinate. Relative to exponential discounting, which is time-consistent, outcomes depend on an EIS threshold. If the elasticity of intertemporal substitution (EIS) >1, present bias raises growth, shifts labor toward R&D, speeds technological innovation, and slows resource extraction; if the EIS <1, economic growth falls, but effects on R&D, innovation, extraction, and pollution are theoretically ambiguous. These results highlight the crucial role of time-inconsistent behavior in shaping both economic development and environmental dynamics.

This paper puts forth a growth model that takes into account the fact that the economy is embedded in a finite Earth. Economic activity uses services which are provided by the biosphere; however, this supply is finite. The question we explore in this paper is whether ideas that drive the accumulation of “brown” and “green” R&D that produces material goods which could be biosphere using or biosphere saving can provide persistent growth when the whole system is embedded in a finite Earth. Or, to put it differently, whether it is possible to have persistent growth supported by idea-driven technical change without violating the impact inequality proposed by Dasgupta (2021), which compares global demand for services provided by the biosphere to the supply of these services. We develop optimal time allocation models and provide conditions that support the feasibility of growth when the net impact on biosphere is zero.