Plain(er) English Rewrite of ‘Discounting for Public Policy: A Survey’ by Hilary Greaves

by Ilsze3 min read26th Apr 2020No comments

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Temporal discountingHilary GreavesResearch summary
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Hey everyone,

I was reading this article https://doi.org/10.1017/S0266267117000062 from the Global Priorities Institute research agenda. I struggled to understand it and I thought how handy a plain English version would be. So I wrote up a grossly simplified, probably less-than-accurate version of the introduction for funsies.

It might be helpful for anyone looking for something to read but not sure whether they want to commit. It should be legible for people with no understanding of economics or philosophy whatsoever. I've copied the original abstract first. My words come after.

Abstract This article surveys the debate over the social discount rate. The focus is on the economics rather than the philosophy literature, but the survey emphasizes foundations in ethical theory rather than highly technical details. I begin by locating the standard approach to discounting within the overall landscape of ethical theory. The article then covers the Ramsey equation and its relationship to observed interest rates, arguments for and against a positive rate of pure time preference, the consumption elasticity of utility, and the effect of various sorts of uncertainty on the discount rate. Climate change is discussed as an application.

My words We know that man has caused climate change. If nothing changes, climate change is likely going to cause serious problems in the future. But by taking actions now, we can reduce its impacts in the future. We wonder to what extent we ought to reduce emissions. This question is in regards to what our behaviour should be. It is also an ethical question. After all, the people who benefit the most from greener actions are not the same as the people who take those actions. The people who 'pay the price' for greener actions are mostly the people who are alive now in richer countries. The people who benefit the most from greener choices are those in poorer countries who have not yet been born. In essence, this is an ethical question about temporal discounting - we are trying to find the value of an action whose payoff occurs in the future. This is in contrast to an otherwise-similar benefit happening now.

More and more people are interested in this important question of temporal discounting. The debate has gotten complex. This article hopes to survey the economics literature on discounting. It focuses on the conceptual aspects of more than the technical aspects. It looks at arguments from all sides but doesn't itself take any sides. It aims to cater for economists and philosophers.

About the structure:

  • Section 2 places discounting in the context of ethical theories. It hopes to find the best social state in terms of 'what we should want' rather than 'what we should do'.
  • Section 3 looks at the 'discounted-utilitarian' value function - this is a standard mechanism used in the realm of discussions about discounting. The mechanism aims to give the value of a set of parameters that may or may not involve delayed payoffs.
  • Section 4 introduces the terminology of 'discount factors' and 'discount rates.'
  • Section 5 deals with the Ramsey Equation, which states a relationship between discount rate, time preference (how much one prefers something now compared to later), risk aversion, and growth in consumption over time.
  • Section 6 compares the Ramsey Equation with other ways of finding discount rate.
  • Section 7 further explores the concept of time preference.
  • Section 8 further explores how much utility changes ain response to changes in consumption.
  • Section 9 covers the relationship between discounting and uncertainty.
  • Section 10 discusses discounting in relation to climate change, and the controversy the Stern review stirred up.
  • Section 11 deals with the simplifications involved in the standard discounting framework. It shows how such simplifications make the framework less useful in the climate change context.
  • Section 12 is a summary.

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