Ecological Intuition versus Economic “Reason

Authors


  • Olivier Guéant, Chaire Finance et Développement Durable, Université Paris-Dauphine, Place du Maréchal de Lattre de Tassigny, 75775 Paris, France. Roger Guesnerie, Collège de France, 3 rue d'Ulm, 75005 Paris, France (roger.guesnerie@college-de-france.fr). Jean-Michel Lasry, CEREMADE, Université Paris-Dauphine, Place du Maréchal de Lattre de Tassigny, 75775 Paris, France.

  • We thank for useful comments on a previous version Ivar Ekeland, Vincent Fardeau, Thomas Piketty, Bertrand Villeneuve, and Martin Weitzman. We also acknowledge useful exchange on this subject with Gary Becker, Steve Murphy, and Joseph Stiglitz. This work has been partly supported by Chaire Finance et Développement Durable.

Abstract

This paper discusses the discount rate to be used in projects aimed at preserving the environment. The model has two different goods: one is the usual consumption good whose production may increase exponentially, and the other is an environmental good whose quality remains limited. The stylized world we describe is fully determined by four parameters, reflecting basic preferences, “ecological” and intergenerational concerns, and feasibility constraints. We define an ecological discount rate and examine its connections with the usual interest rate and the optimized growth rate. We discuss, in this simple world, different forms of the precautionary principle.

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