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Monday, August 11, 2014

'How Much is our Distant Future Worth?'

Cecchetti & Schoenholtz

How much is our distant future worth?: ...One new report estimates that – on the current path – perhaps $500 billion of U.S. coastal properties will be below sea level by 2100. ... We have plenty of other longer-run worries, too; like surviving a future asteroid hit (an event like the Tunguska blast of 1908 – perhaps 1,000 times more powerful than the Hiroshima bomb – probably occurs every 1,200 years) or managing radioactive waste (which can be toxic for tens of thousands or even millions of years).
How much should we care about such big threats that are potentially far off in time? How much ought we spend now to avoid a $1 worth of damage hundreds of years in the future? ... [explains how long-term discount rates are calculated] ...
Economists have tried several (more sophisticated) ways to measure very long-term discount rates... One well-known report, which applied a relatively low discount rate of 1.4%, called for rapid, large reductions in carbon emissions to limit future losses associated with climate change. A different analysis based on a relatively high 4.3% discount rate called for a carbon tax only about one-tenth the level implied by the low-discount rate analysis. Why? The low discount rate puts a great deal more weight on losses that are predicted to occur hundreds of years in the future.
Of course, it’s not just about discount rates. It’s about the scale of future losses, too. If policy actions today can prevent a calamity that threatens life on earth, then most people (including us) might judge the appropriate discount rate to be quite low because we would not weight the value of future lives any lower than their own. And there’s at least one powerful reason to suspect that ... today’s governments don’t weight those future lives sufficiently: our distant descendants don’t vote.

    Posted by on Monday, August 11, 2014 at 08:23 AM in Economics, Environment | Permalink  Comments (19)



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