Tuesday, December 8, 2009

What intertemporal policy objective to take?

How should policies take into account future generations? This is a tough question to answer because future generations are not present to offer their opinion, and because there is uncertainty about what the future holds. This is especially true with climate change, the availability of natural resources, and the environment in general.

Humberto Llavador, John Roemer and Joaquim Silvestre try to tackle this tricky issue and explore several social welfare criteria. Typically, we use some discounted utilitarian function, which can, under certain circumstances, advocate the end of the world in finite time, and thus forget about some future generations as long as current ones gain sufficiently. Given uncertainty about future outcomes, this seems to be a dangerous route. I prefer more Rawlsian arguments, which dictate that one should optimize the outcome of the worst off generation, whichever that may be. This obviously prioritizes sustainability, as it would under most circumstances put some constraints on generations very far away under catastrophic scenarios. But this is what policy should achieve: foremost an insurance against the worst outcomes.

Llavador, Roemer and Silvestre also discuss other criteria. Not a simple read, but quite obviously an important topic in the current context.

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