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Intergenerational Equity with Individual Impatience in an OLG Model of Optimal and Sustainable Growth

Among the ethical objections to intergenerational impartiality is the violation of consumer sovereignty given that individuals are impatient. We accommodate that concern by distinguishing intra- and inter-generational discounting in an OLG model suitable for analyzing sustainability issues. Under the assumption of constant elasticity of marginal felicity, the optimum trajectory of aggregate consumption is guided, via the Ramsey condition, by the intergenerational discount rate but not the personal discount rate. In an economy with produced capital and a renewable resource, intergenerational neutrality results in a sustained growth path, without the necessity of a sustainability constraint, even in the presence of intragenerational impatience. We also find that green net national product remains constant along the optimal approach path to golden rule consumption.

Published version: Endress, L.H., Pongkijvorasin, S., Roumasset, J., Wada, C.A., 2013. Intergenerational equity with individual impatience in a model of optimal and sustainable growth. Resource and Energy Economics. In Press.

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