Intergenerational discounting: a new intuitive approach

Abstract

This paper proposes a new intergenerational discounting approach for computing net benefits from the use of environmental resources. The approach explicitly incorporates the perspectives of both the current and future generations, as argued for by Pigou [Pigou, A.C., 1920. The Economics of Welfare 1952 (4th edition), London: Macmillan] and Ramsey [Ramsey, F.P., 1928. A mathematical theory of saving, Econ. J., 38 543–559], and required by most national and international laws related to the use of these resources. An equation for use in the calculation of net discounted benefits is developed, which provides a ‘middle’ position whereby both the ‘reality’ of ‘personal’ discounting and that of ‘social’ discounting are included in a social welfare function.