A not so myopic axiomatization of discounting

Abstract

This article builds an axiomatization of inter-temporal trade-offs that takes an explicit account of the distant future. The focus is on separable representations and the approach is completed following a decision-theory index based approach that is applied to utility streams understood as the well-being of future generations. The introduction of some new axioms is herein shown to lead to the emergence of two distinct orders that respectively relate to the distant future and close future components of some utility stream. This enlightens the limits of the commonly used fat tail intensity requisites for the evaluation of utility streams. These are replaced by an axiomatic approach to myopia degrees.

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Correspondence to Thai Ha Huy.

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Earlier versions of this study were presented at the SAET 2017 and PET 2017 conferences, at a workshop in Firenze, at the internal seminar of the Warsaw School of Economics and at the Time, Uncertainties and Strategies IV conference in Paris. A more recent version was presented at the \(\hbox {VII}^{th}\) Hurwicz Conference on Mechanism Design in Warsaw. The authors would like to thank Gaetano Bloise, Alain Chateauneuf, Rose-Anne Dana, Joanna Franaszek and Jan Werner for their insightful comments on these occasions. Detailed remarks from two anonymous referees and the editor, all of them being thanked for their patience in the completion of the revised version, were also helpful in clarifying the contents of the article. Thai Ha-Huy would like to thank the Labex MME-DII (ANR-11-LBX-0023-01) for its support during the completion of this article. This article was completed during the time Thai Ha-Huy worked as délégué at the Theoretical Economics team UMR 8545 of the CNRS, Paris School of Economics (Campus Jourdan). He acknowledges the members of PSE and the CNRS for the warm welcome and the excellent working conditions.

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Drugeon, JP., Ha Huy, T. A not so myopic axiomatization of discounting. Econ Theory (2021). https://doi.org/10.1007/s00199-020-01336-3

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Keywords

  • Axiomatization
  • Myopia
  • Temporal Order Decompositions
  • Distant future sensitivities

JEL Classification

  • D11
  • D90