Discounting and welfare evaluation of policies

• Type: Article in International Scientific Journal
• Date: 2017

Authors

Mertens, JF (Author) Other; Rubinchik, A (Author) Other

Journal

Title: Journal Of Public Economic Theory

Vol. 19

Pages: 903-920

ISSN: 1467-9779

Publisher: Wiley-Blackwell

Indexing

ISI Web of Knowledge - 2 Citations

Scopus - 2 Citations

Other information

Authenticus ID: P-017-3SB

DOI: 10.1111/jpet.12266

Abstract (EN): We start with the premise that if policy discounting is to have any welfare relevance, one has to accept it being a derivative of a social welfare function (SWF). We show that if that derivative is to have a net present value (NPV) form, then the baseline allocation must be stationary. In addition, we show that at a stationary baseline in an overlapping generations growth economy, the intergenerationally fair discount rate equals the growth rate of per-capita consumption, which is, roughly, 2% for the United States. This differs from the interest rate, even in the golden rule equilibrium, unless population growth is null. The last result is based on the main theorem in Mertens and Rubinchik (2012) and is demonstrated for a policy space that might naturally arise in applications.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 18