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Pricing the Planet's FutureThe Economics of Discounting in an Uncertain World$
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Christian Gollier

Print publication date: 2012

Print ISBN-13: 9780691148762

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691148762.001.0001

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Introduction

Introduction

Chapter:
(p.1) Introduction
Source:
Pricing the Planet's Future
Author(s):

Christian Gollier

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691148762.003.0016

This introductory chapter considers the problem of investment project selection, i.e. which projects should be implemented to maximize intergenerational welfare. To address the challenge of allocating present sacrifices for the future in the way that maximizes the increase in welfare of future generations, the chapter introduces the cost-benefit analysis (CBA). The CBA is a set of valuation techniques that enables priorities to be put on the set of investment opportunities to be compatible with maximizing intertemporal welfare. The focus here is on how to compare temporally distributed valuations of different projects’ impacts, once these valuations have been made. One key ingredient in the CBA toolkit is the discount rate, which can be interpreted as the minimum rate of return required from a safe investment project to make it socially desirable to implement.

Keywords:   investment project selection, social welfare, environmental risks, intergenerational welfare, cost-benefit analysis, CBA, discount rate, investment opportunities, economics

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