Working Paper: NBER ID: w7983
Authors: Andrew Caplin; John Leahy
Abstract: In welfare theory it is standard to pick the consumption stream that maximizes the welfare of the representative agent. We argue against this position, and show that a benevolent social planner will generally place a greater weight on future consumption than does the representative agent. Our analysis has immediate implications for public policy: agents discount the future too much and the government should promote future oriented policies.
Keywords: Social discount rate; Welfare economics; Public policy
JEL Codes: D60; D90; E61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Benevolent social planner's perspective (D69) | Greater weight on future consumption (D15) |
| Maximizing utility of representative agent (D11) | Myopic view of social welfare (D69) |
| Myopic view of social welfare (D69) | Higher social discount rate (H43) |
| Higher social discount rate (H43) | Harm to future generations (D15) |
| Retrospective time inconsistency (D15) | Regret of past consumption choices (D15) |