Balancing the Distribution Across Generations: Putting the Horse Before the Cart

In a productive economy, there is a generic conflict of interest between generations: On the one hand, there should be savings to achieve economic progress and at least to ensure sustainability, i.e., to avoid a decline of well-being over time. On the other hand, the burden that is inflicted on earlier generations through their savings in favor of the future generations should not become excessive. Against this background, the question arises whether a unique utilitarian social welfare function (SWF) is capable of taking these two ethical postulates into account for any given technology and thus there is flexibility in the sense of Asheim (2017). In a simple two-generation model, we first of all show that the answer to this question is ambiguous. While SWFs can be found that ensure sustainability in any case, excessive savings cannot be prevented by the same SWF for all, but in the two-generation case at least for linear and concave technologies. In this context, we in particular highlight that the elasticity of marginal utility of the utility function that underlies the SWF is of much more importance for avoiding overburdening of the early generation than the social discount rate. We also note that inequality of well-being between generations cannot be kept within a limit by a single SWF for any given technology. Extending the analysis to the multi-period case provides analogous results.