Arnold Kling  

Hal Varian on the Stern Report

Collegiate Writing... Major Economic Stories, Update...

He wrote,

According to [William] Nordhaus, the assumptions used in the Stern Review imply that per capita yearly consumption in 2200 will be $94,000 as compared with $7,000 today. So, is it really ethical to transfer wealth from someone making $7,000 a year to someone making $94,000 a year?

Although Varian made a valiant effort to explain the nature of the controversy over the discount rate used in the Stern Report, my sense is that he did not succeed. It is quite a messy issue. I don't think that my attempt succeeds, either. My guess is that it takes a pretty strong technical background in economics to appreciate either Varian's column or my earlier blog post.

However, Varian and I both are saying that the Stern report took an extreme position on social discounting. Moreover, this position has implications that go far beyond global warming policy.

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Barkley Rosser writes:

I actually finally took a closer look at Nordhaus's projections and discovered that he did what I have been recommending all over the place: he used green golden rule hyperbolic discounting, in his case starting with a 3% for the near term with the rate declining to 1% for periods after 200 years. Not too bad I would say. Gives his account a lot of credibility.

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