DISCOUNTING AND THE OPTIMIST PARADOX
In Cost-Benefit analysis,e.g. when discussing costs and benefits of climate change policies, or evaluating a public investment, mainstream economists discount the future. Why? Two reasons. First, they explain discounting by subjective "time-preference". Second, they add another factor. They assume that economic growth per capita will make the marginal utility (satisfaction) of consumption lower for our descendants than it is for us today. That is, they discount the future because they assume that the future will be more prosperous, and therefore they recommend destroying more exhaustible resources today and polluting more than otherwise would be the case, thereby undermining future prosperity. This has been called the “optimist paradox”. Both Stern and Nordhaus discount the future, Stern at a lower rate because he assumes lower economic growth for the future than Nordhaus. Of course such economic growth is not well measured because we should subtract damage from climate change, loss of biodiversity... Now, to give a present value to such future losses, we need a discount rate (could be zero). So, the whole building of CBA crumbles, as ecological economists (Norgaard and Howarth etc) have pointed out for 20 or 30 years now. J. Martinez-Alier -- You received this message because you are subscribed to the Google Groups "geoengineering" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To post to this group, send email to [email protected]. Visit this group at http://groups.google.com/group/geoengineering. For more options, visit https://groups.google.com/groups/opt_out.
