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Fair Intergenerational Utilitarianism: Risk, its Resolution over Time, and Discounting

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  • Paolo Giovanni Piacquadio

Abstract

The paper reexamines the welfare economics of intergenerational risk. Risk and its resolution over time are modeled as a decision tree: in each period, the consumption of the current one-period living generation is to be traded-off against uncertain benefits of future generations; as time passes, the planner observes the realized shocks and becomes more informed about the economy. The characterized class of criteria, named fair intergenerational utilitarian, measures social welfare in terms of the ratio between the allocated consumptions and an endogenously-determined equitable reference. This allows social preferences to (i) disentangle aversion to intergenerational inequality from aversion to risk, (ii) exhibit a preference for early resolution of risk, (iii) show different discounting formulas depending on the magnitude of risk and on the timing of its resolution, and (iv) avoid extreme policy recommendations in the presence of fat-tailed catastrophic events.

Suggested Citation

  • Paolo Giovanni Piacquadio, 2014. "Fair Intergenerational Utilitarianism: Risk, its Resolution over Time, and Discounting," CESifo Working Paper Series 5143, CESifo.
    • Handle: RePEc:ces:ceswps:_5143
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5143.pdf
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    References listed on IDEAS

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    1. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 4, pages 76-84, Palgrave Macmillan.
    2. Kjell Arne Brekke & Geir B. Asheim, 2002. "Sustainability when capital management has stochastic consequences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 19(4), pages 921-940.
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    Cited by:

    1. Gerlagh, Reyer, 2017. "Generous Sustainability," Ecological Economics, Elsevier, vol. 136(C), pages 94-100.

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    More about this item

    Keywords

    intergenerational justice; timing of risk resolution; social ordering; discounting;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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