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Title:Generation adjusted discounting in long-term decision-making PDF Logo
Authors:Bayer, Stefan
Issue Date:2000
Series/Report no.:Tübinger Diskussionsbeiträge 187
Abstract:This paper analyses the choice of an inter-generational discount rate as well as a method for inter-generational discounting. It is shown that the pure time preference rate is irrelevant for inter-generational comparisons. However, the application of the growth time preference rate - with respect to consumption - is a necessary condition for inter-temporal utility maximisation. Opportunity costs should be taken into account not by discounting with their internal rate of return, but by calculating consumption equivalents (shadow prices of capital). Thus, an intergenerational discount rate has to be based on the time preference approach. These considerations lead us to the formulation of a new discounting technique, Generation Adjusted Discounting (GAD). It takes into account intra- as well as inter-generational aspects. Compared with conventional discounting techniques, we find that the present values obtained by using the GAD noticeably exceed those derived conventionally.
Subjects:generation-adjusted discounting
intergenerational discounting
intragenerational discounting
opportunity cost rate
time preference rate
long-term decision making
Persistent Identifier of the first edition:urn:nbn:de:bsz:21-opus-19624
Document Type:Working Paper
Appears in Collections:Tübinger Diskussionsbeiträge, Universität Tübingen

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