Published in
Journal of Economic Theory 147, pages 1572–1601
DOI: 10.1016/j.jet.2011.08.001
Abstract
The discounted utilitarian criterion for infinite horizon social choice has been criticized for treating generations unequally. We propose an extended rank-discounted utilitarian (ERDU) criterion instead. The criterion amounts to discounted utilitarianism on non-decreasing streams, but it treats all generations impartially: discounting becomes the mere expression of intergenerational inequality aversion. We show that more inequality averse ERDU societies have higher social discount rates when future generations are better off. We apply the ERDU approach in two benchmark economic growth models and prove that it promotes sustainable policies that maximize discounted utilitarian welfare.
NOTICE: this is the authors version of a work that was accepted for publication in Journal of Economic Theory (preprint).