How stationarity contradicts intergenerational equity

Geir Bjarne Asheim, Kuntal Banerjee and Tapan Mitra

Economic Theory

Front page of journal Economic Theory

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Published in:

Economic Theory, September 2020, Volume 70

Link to the paper

Abstract:

We show how the condition of stationarity may contradict intergenerational equity. By formalizing the intuition that less sensitivity remains for the continuation of the stream if sensitivity for the interests of the present is combined with stationarity, we point out conflicts (a) between stationarity and the requirement of not letting the present be dictatorial, and (b) between stationarity and equal treatment of generations. We use the results to interpret the non-stationarity of the Chichilnisky and Rank-discounted utilitarian social welfare functions. Non-stationarity combined with time invariance leads to time inconsistency. We illustrate how such non-stationary social welfare functions can be applied in the Ramsey model if time invariance is imposed.

Published Sep. 24, 2020 10:10 AM - Last modified Sep. 29, 2020 1:47 PM