How stationarity contradicts intergenerational equity

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.

Intragenerational Inequality Aversion and Intergenerational Equity

“…Asheim and Nesje (2016) use the maximin path as a benchmark for intergenerational equity, as the maximin welfare level offers a lower bound for welfare under other, more sophisticated criteria, such as the Calvo criterion, Sustainable Discounted Utility and Rank Discounted Utility, whose solutions may not be easy to compute in particular problems. Also, more sophisticated forms of intergenerational equity imply time-inconsistency, which has to be dealt with using sophisticated game-theoretic equilibrium selection (Asheim et al, 2020). Intertemporal egalitarianism is thus for us a natural first step.…”

“…disentangle the effect of intragenerational and intergenerational inequality aversions on the social cost of carbon.3 SeeAsheim and Ekeland (2016) for a discussion of the interest of this model to study sustainability issues, andAsheim and Nesje (2016) for the analysis of the optimal path in this model under various criteria of intergenerational equity. See alsoAsheim et al (2020) who discuss time-consistency issues for criteria that do not satisfy stationarity, and illustrate their results in theRamsey model. 4 There are a few exceptions, including the axiomatic work on intergenerational equity with varying…”