Intergenerational Discounting Workshop

On September 22 and 23, 2011, the U.S. Environmental Protection Agency (EPA) sponsored a workshop held at Resources for the Future to seek advice on how the benefits and costs of regulations should be discounted for projects with long horizons—that is, for projects that affect future generations. In contrast to the case of intragenerational discounting, where guidelines are well-established, both EPA and the Office of Management and Budget (OMB) give analysts more flexibility in discounting the net benefits of projects that affect future generations. The purpose of the workshop was to seek advice from the 12 panelists listed below as to how analysts might proceed in these cases.

The Charge Questions to the Committee summarize current discounting guidelines issued by OMB and EPA and the practices that were used by the Interagency Working Group on the Social Cost of Carbon. Appendix B also lists the three sets of charge questions the panelists were asked to consider. The first set dealt with the use of the Ramsey formula as an organizing principle for determining discount rates over long horizons. The second dealt with the literature on declining discount rates. This literature suggests that if there is a persistent element to the uncertainty in the rate of return of capital or in the growth rate of the economy, then it will result in an effective discount rate that declines over time. The final set of charge questions asked how intra- and intergenerational discounting practices could be made compatible.

The main points raised by the panelists in answer to these questions are summarized in this document.

Maureen Cropper, Senior Fellow, Resources for the Future & Distinguished Professor of Economics, University of Maryland, College Park

Kenneth Arrow, Joan Kenney Professor of Economics and Professor of Operations Research, Emeritus and CHP/PCOR Fellow, Stanford University

Christian Gollier, Director, Toulouse School of Economics

Ben Groom, Senior Lecturer in Economics, University of London

Geoffrey Heal, Donald C. Waite III Professor of Social Enterprise, Columbia Business School

Richard Newell, Gendell Associate Professor of Energy and Environmental Economics, Duke University

William Nordhaus, Sterling Professor of Economics, Yale University

Robert Pindyck, Bank of Tokyo-Mitsubishi Ltd Professor in Finance and Economics, MIT

Billy Pizer, Associate Professor of Public Policy and Environment, Sanford School of Public Policy, Duke University

Paul Portney, Professor of Economics, University of Arizona

Thomas Sterner, Professor, Department of Economics, Gothenburg University

Richard Tol, Research Professor, Economic and Social Research Institute, Dublin

Martin Weitzman, Professor of Economics, Harvard University