Conference Agenda

Overall economic growth is projected to persist while the state of the environment is stagnating or in decline. Public policy is advised to account for the increasing relative scarcity of nature by uplifting future environmental values or discounting market consumption goods and the environment at differing rates. Yet, no empirical study to date has estimated preference parameters necessary to calibrate dual discount rates. Here, we conduct a laboratory choice experiment to fully specify the canonical dual discounting approach. We find that preference elasticities differ markedly between private consumption and non-market environmental benefits, implying that they are only weak substitutes. Using recent estimates of good-specific growth rates, we find a wedge between the dual discount rates of around 1.5 percentage points. We show that the error made by using a single discount rate and constant relative prices almost exclusively concerns the environmental discount rate. As a key diversion from standard theory, we document an important role of loss aversion, as preference estimates depend on the sign of growth. We show that this motivates a downward level-shift for both discount rates, increasing the general weight of future outcomes for today's decisions. In addition, central assumptions of the workhorse isoelastic utility model are rejected, highlighting the need for discounting frameworks that align better with social preferences.

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.