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Harnessing the uncertainty monster: Putting quantitative constraints on the intergenerational social discount rate

Research output: Contribution to journalArticle

Original languageEnglish
Pages (from-to)155-166
Number of pages12
JournalGlobal and Planetary Change
Volume156
Early online date25 Apr 2017
DOIs
DateAccepted/In press - 24 Mar 2017
DateE-pub ahead of print - 25 Apr 2017
DatePublished (current) - 1 Sep 2017

Abstract

There is broad consensus among economists that unmitigated climate change will ultimately have adverse global economic consequences, that the costs of inaction will likely outweigh the cost of taking action, and that social planners should therefore put a price on carbon. However, there is considerable debate and uncertainty about the appropriate value of the social discount rate, that is the extent to which future damages should be discounted relative to mitigation costs incurred now. We briefly review the ethical issues surrounding the social discount rate and then report a simulation experiment that constrains the value of the discount rate by considering 4 sources of uncertainty and ambiguity: Scientific uncertainty about the extent of future warming, social uncertainty about future population and future economic development, political uncertainty about future mitigation trajectories, and ethical ambiguity about how much the welfare of future generations should be valued today. We compute a certainty-equivalent declining discount rate that accommodates all those sources of uncertainty and ambiguity. The forward (instantaneous) discount rate converges to a value near 0% by century's end and the spot (horizon) discount rate drops below 2% by 2100 and drops below previous estimates by 2070.

    Structured keywords

  • Cognitive Science
  • Memory

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  • Full-text PDF (accepted author manuscript)

    Rights statement: This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Elsevier at https://www.sciencedirect.com/science/article/pii/S0921818116302958?via%3Dihub. Please refer to any applicable terms of use of the publisher.

    Accepted author manuscript, 688 KB, PDF document

    Licence: CC BY-NC-ND

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