Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/47528 
Authors: 
Year of Publication: 
2000
Series/Report no.: 
Tübinger Diskussionsbeiträge No. 187
Publisher: 
Eberhard Karls Universität Tübingen, Wirtschaftswissenschaftliche Fakultät, Tübingen
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: 
Document Type: 
Working Paper

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