Justifying social discounting: the rank-discounted utilitarian approach (Q435917)

The most popular objective function used to determine optimal policies in infinite horizon models for social choice is the discounted utilitarian criterion, which has, however, been heavily criticised for treating generations unequally. For intergenerational justice purposes, this paper proposes to apply, instead to the discounted utilitarian criterion, rank-dependent methods, and more specifically, an extended rank-discounted utilitarian (ERDU) criterion. The ERDU criterion amounts to discounted utilitarianism on non-decreasing streams, but it treats all generations impartially. The paper shows also that more inequality averse ERDU societies have higher social discount rates, when future generations are better off. The ERDU approach is applied in two benchmark economic growth models and is proved to promote sustainable policies that maximise discounted utilitarian welfare.