Justifying Social Discounting: The Rank-discounted Utilitarian Approach

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Executive Summary

The popular discounted utilitarian criterion for infinite horizon social choice has been criticized on the ground that it treats successive generations unfairly. The author proposes to evaluate intergenerational welfare with a Rank-Discounted Utilitarian (RDU) criterion instead. The criterion amounts to discounted utilitarianism on non-decreasing paths, but it treats all generations impartially: discounting becomes the mere expression of intergenerational inequality aversion. The author shows that more inequality adverse RDU societies have higher social discount rates when future generations are better-off. The author applies the RDU approach in two benchmark economic growth models and the author proves that it promotes sustainable policies maximizing discounted utility.

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