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Discounting Nordhaus

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  • Thomas Michl

Abstract

This paper evaluates Nordhaus's neoclassical complaints about the Stern Review from the vantage point of classical growth theory. Nordhaus criticizes the Stern Review because it uses a discount rate that is well below the market rate of return on capital. From the perspective of classical growth theory, Nordhaus's belief in choosing preference parameters for the social planner based on observed market rates of return is equivalent to assigning the preferences of the capitalist agents to the social planner. This equivalence is an implication of the Cambridge Theorem, which interprets the Ramsey equation as the saving function of the capitalist agents.

Suggested Citation

  • Thomas Michl, 2010. "Discounting Nordhaus," Review of Political Economy, Taylor & Francis Journals, vol. 22(4), pages 535-549.
    • Handle: RePEc:taf:revpoe:v:22:y:2010:i:4:p:535-549
    DOI: 10.1080/09538259.2010.510316
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    References listed on IDEAS

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    1. Thomas Michl, 1999. "Biased Technical Change and the Aggregate Production Function," International Review of Applied Economics, Taylor & Francis Journals, vol. 13(2), pages 193-206.
    2. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
    3. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801, September.
    4. Luigi L. Pasinetti, 1962. "Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(4), pages 267-279.
    5. Thomas R. Michl & Duncan K. Foley, 2004. "Social security in a Classical growth model," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 28(1), pages 1-20, January.
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    Cited by:

    1. Leila Davis & Peter Skott, 2011. "Positional goods, climate change and the social returns to investment," UMASS Amherst Economics Working Papers 2011-24, University of Massachusetts Amherst, Department of Economics.

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    More about this item

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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