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Abstract
Recent modelling of the costs and benefits of climate change has renewed debate
regarding assumptions for the social discount rate in analysing the impacts of environmental
change. Previous literature suggests two key factors influence estimates of the
social discount rate: the rate of pure time preference and the elasticity of marginal utility
of future consumption. These components of the social discount rate reinforce the
linkages between the choice of social discount rate and intergenerational distribution.
This paper addresses the question of the relationship between intergenerational equity
and the social discount rate and promotes the application of intergenerational distributional
weights as a means of incorporating intergenerational equity preferences in
policy analysis. Intergenerational equity-adjusted social discount rates are derived as a
means of decomposing the intergenerational equity aspect of the social discount rate.
The work has significant policy implications for projects with long time frames given
the sensitivity of Cost Benefit Analysis outcomes to decisions regarding the social
discount rate.