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The Worst-Case Scenario and Discounting the Very Long Term

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  • El Hadji Fall

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We propose an ethical viewpoint based on the possibility of the realization of the worst-case scenario in order to reduce future generations risks in terms of discounting. Applied to the question of conservation of a renewable resource, we show that an economy, where the social planner takes into account the possibility that at an uncertain date the discount rate could change to its minimum possible value, could lead to a better conservation of the resource and modify the position of the sacrificed generations. Finally, our model suggests to apply the lowest possible discount rate immediately for long term environmental projects.

Suggested Citation

  • El Hadji Fall, 2006. "The Worst-Case Scenario and Discounting the Very Long Term," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00084074, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00084074
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00084074
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    References listed on IDEAS

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    1. Heal, Geoffrey M., 1993. "The optimal use of exhaustible resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 18, pages 855-880, Elsevier.
    2. Alain Le Kama & Katheline Schubert, 2004. "Growth, Environment and Uncertain Future Preferences," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 28(1), pages 31-53, May.
    3. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
    4. Alain Ayong Le Kama, 2001. "Preservation and exogenous uncertain future preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 745-752.
    5. Chichilnisky, Graciela & Beltratti, Andrea & Heal, Geoffrey, 1998. "Uncertain future preferences and conservation," MPRA Paper 7912, University Library of Munich, Germany.
    6. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
    7. Geoffard, Pierre-Yves, 1996. "Discounting and Optimizing: Capital Accumulation Problems as Variational Minmax Problems," Journal of Economic Theory, Elsevier, vol. 69(1), pages 53-70, April.
    8. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 3-28.
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    Cited by:

    1. Brian Deal & Haozhi Pan, 2016. "Discerning and Addressing Environmental Failures in Policy Scenarios Using Planning Support System (PSS) Technologies," Sustainability, MDPI, vol. 9(1), pages 1-17, December.

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    More about this item

    Keywords

    intergenerational equity; preservation of natural resources; uncertainty; environment; Discounting; Escompte; Environnement; Incertitude; Préservation; Equité intergénérationnelle;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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