In case of doubt: discount less

In 2021, I wrote a dissertation about discounting under uncertainty with Pauline Culioli and Lou-Lélia Demerliac. We were supervised by Guy Meunier. I mainly worked on part 4, which focuses on moral uncertainty. The full dissertation is available here (in French). Here is a translation of the abstract.

Abstract

How can we find a good balance between satisfying present generations and investing for the future, when the future is uncertain? Discounting allows evaluation of projects that yield benefits at different time periods by giving a weight to each of these time periods. This dissertation reviews the main progress on discounting under uncertainty in the economic literature. We find that uncertainty around economic growth and around rates of return leads to a declining discount rate, and that the particular shape of uncertainty around global warming shows the limits of cost-benefit analysis. We then propose a simple framework that integrates moral uncertainty. Under certain hypotheses, we show that moral uncertainty results in modified version of the Ramsey formula, where the discount rate is declining as well, and declines more rapidly when moral uncertainty is stronger. This result is an additional argument in favor of using very low discount rates for the long term future.

→ Access the full dissertation (in French)