Consumer Sovereignty vs. Intergenerational Equity: An Overview of the Stern-Nordhaus Debate
At first glance, the Ramsey formula delivers a simple framework to the issue of discounting. However, in the context of projects with long time horizons such as the reduction of GHG emissions, the correct parametrization is indeed challenging. Here, supposedly small differences in the formula values have major impacts on policy outcomes. In particular, the value assignment for the pure rate of time preference is very controversial as different values can be motivated by different normative concepts. As mentioned above, this has caused a long and intense discussion in economics between Nicholas Stern and William Nordhaus.
KeywordsDiscount Rate Time Preference Real Interest Rate Climate Protection Intergenerational Equity
Unable to display preview. Download preview PDF.