Maya Eden has a new paper on this topic, I believe it is forthcoming in Econometrica: In this paper, I consider two normative questions: (1) how should policymakers approach tradeoffs that involve different age groups, and (2) at what rate should policymakers discount the consumption of future generations? I demonstrate that, under standard assumptions, these
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Maya Eden has a new paper on this topic, I believe it is forthcoming in Econometrica:
In this paper, I consider two normative questions: (1) how should policymakers approach tradeoffs that involve different age groups, and (2) at what rate should policymakers discount the consumption of future generations? I demonstrate that, under standard assumptions, these two questions are equivalent: caring more about the future means caring less about the elderly. Even small differences between the social discount rate and the market interest rate can have significant quantitative implications for the relative value placed on the consumption of different age groups.
To get to the paper, look here and then click on the first link. Some of you will recall that I make a similar argument in my Stubborn Attachments.
Elsewhere on the discount rate front, the OMB is calling for lower discount rates in policy analysis. I’m all for that, but the trick is to apply them consistently, not just use them to rationalize particular government expenditures. Will we at the same time start spending less money on the elderly and more money on the young? Otherwise obsess over growth-enhancing policies? To ask such questions is to answer. If only our institutions took their own work seriously on discount rates…
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Economics, Philosophy, Uncategorized