Discounting and welfare evaluation of policies

Jean François Mertens, Anna Rubinchik

Research output: Contribution to journalArticlepeer-review


We start with the premise that if policy discounting is to have any welfare relevance, one has to accept it being a derivative of a social welfare function (SWF). We show that if that derivative is to have a net present value (NPV) form, then the baseline allocation must be stationary. In addition, we show that at a stationary baseline in an overlapping generations growth economy, the intergenerationally fair discount rate equals the growth rate of per-capita consumption, which is, roughly, 2% for the United States. This differs from the interest rate, even in the golden rule equilibrium, unless population growth is null. The last result is based on the main theorem in Mertens and Rubinchik (2012) and is demonstrated for a policy space that might naturally arise in applications.

Original languageEnglish
Pages (from-to)903-920
Number of pages18
JournalJournal of Public Economic Theory
Issue number5
StatePublished - Oct 2017

Bibliographical note

Publisher Copyright:
© 2017 Wiley Periodicals, Inc.

ASJC Scopus subject areas

  • Finance
  • Sociology and Political Science
  • Economics and Econometrics


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