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Discounting and welfare evaluation of policies

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  • Jean-François Mertens
  • Anna Rubinchik

Abstract

If policy discounting is to have any welfare relevance, it must be a derivative of a social welfare function. If that derivative is to have a net present value form, the baseline allocation must be stationary. Given a stationary baseline in an overlapping generations growth economy the inter-generationally fair discount rate under the relative utilitarian welfare function equals the growth rate of per-capita consumption, roughly, 2% for the U.S. This differs from the interest rate, even in the golden rule equilibrium unless population growth is null.
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  • Jean-François Mertens & Anna Rubinchik, 2017. "Discounting and welfare evaluation of policies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(5), pages 903-920, October.
    • Handle: RePEc:bla:jpbect:v:19:y:2017:i:5:p:903-920
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    1. Aviad Heifetz & Enrico Minelli & Herakles Polemarchakis, 2021. "Liberal parentalism," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(6), pages 1107-1129, December.

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    More about this item

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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