Discount Rate Calculation in the Stern Review
The discount rate used in the Stern Review to weigh the wellbeing of future generations consists of two main components. First, it includes a 1.3% annual discount based on the expectation of rising future productivity, which implies that future generations will be wealthier. [1] Second, it adds a 0.1% annual discount to factor in the existential risk that there may not be surviving generations in any given future year. [1, 14] This approach notably does not include discounting based on pure intrinsic impatience.
0
1
Tags
SARS-CoV-2 (COVID-19)
Biomedical Sciences
Economics
Economy
Social Science
Empirical Science
Science
CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
Related
Reinforcement of Stern Review's Conclusions by the IPCC (2014)
Early Action Strategies for Climate Change Mitigation
The 'Business as Usual' Scenario in the Stern Review
Discount Rate Calculation in the Stern Review
Criticism of the Stern Review's Low Discount Rate
The Employment Distribution Paradox
A landmark 2006 report on the economics of climate change concluded that the benefits of strong, early action to reduce emissions significantly outweigh the costs of inaction. This conclusion was heavily influenced by the use of a very low discount rate, which values the welfare of future generations at nearly the same level as the current generation. Which of the following statements represents the most significant economic criticism of this methodology?
Evaluating Long-Term Environmental Policy
A major 2006 economic report on climate change advocated for immediate, large-scale investment to prevent future environmental damage. Its cost-benefit analysis was based on a low discount rate, which gave significant weight to the welfare of future generations. Which of the following best describes the two primary justifications for the specific discount rate used in this report?
An economic analysis is conducted to evaluate a large-scale, long-term environmental protection project. The project requires significant upfront investment but is expected to yield substantial benefits for society 100 years in the future. Two different approaches are considered for the analysis:
- Approach 1: Uses a low discount rate to calculate the present value of future benefits.
- Approach 2: Uses a high discount rate to calculate the present value of future benefits.
Which of the following outcomes is the most likely result of these different approaches?
Evaluating Climate Policy Proposals
A landmark 2006 economic report on climate change presented a powerful argument for immediate action based on a specific cost-benefit analysis. Match each element of the report's methodology and findings to its correct description.
The Economic Rationale for Climate Action
A government is debating a new policy that would impose significant, immediate costs on the economy to fund large-scale projects aimed at reducing carbon emissions over the next century. A critic argues, 'It is economically irresponsible to spend so much now to prevent problems that are far in the future. We should focus on more immediate economic needs.' Based on the central conclusion of a landmark 2006 economic analysis of climate change, which of the following statements provides the strongest counter-argument?
A landmark 2006 economic analysis of climate change justified discounting the value of future environmental benefits, in part, by assuming that future generations will be significantly wealthier and thus a marginal dollar will be worth less to them. An opponent of this view argues that this specific justification is ethically flawed when applied to irreversible climate impacts. Which of the following statements best supports the opponent's ethical argument?
A major 2006 economic report on climate change advocated for immediate, large-scale investment to prevent future environmental damage. Its cost-benefit analysis was based on a low discount rate, which gave significant weight to the welfare of future generations. Which of the following best describes the two primary justifications for the specific discount rate used in this report?