Pricing the Planet’s Future

by Christian Gollier (2012)

This is an extremely detailed and comprehensive book on estimating discount rates. A key economic sensitivity which is used to make investment decisions, and to bring future climate damages into the equivalent of today’s money or utility (the value placed on future generations). The book uses the Ramsey Social Discount Rate as a foundation, then explores adaptations of the model to account for uncertainty, equality, and future learning.

Gollier highlights that discounting is required to avoid inequality through either space or time. He asserts (based on 2% growth) that a basic 4% real discount rate is justified using the Ramsey equation (comprised of 0% pure time preference and 2x elasticity of marginal utility). But extending the analysis to include the precautionary principle (and uncertainty) the discount rate declines to ~3% and adding in the risk of tipping points the rate could decline to as low as ~1% through time.

I would recommend this book if you want to delve deeper into the the economics and ethics of discounting, but a decent grounding in maths is required. I found this title extremely useful in balancing the conflicting views of economists on this controversial subject and in arriving at a suitable discount rate to use in the book, net-zero.

*Book cover credit: Ken Graham

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