by Olivier Guéant, Roger Guesnerie & Jean-Michel Lasry
This article discusses the discount rate to be used in projects that aimed at preserving the environment. The model has two di§erent goods, one is the usual consumption good whose production may increase exponentially, the other is an environmental good whose quality remains limited. The stylized world we describe is fully determined by four parameters reáecting basic preferences, “ecological” and intergenerational concerns and feasibility constraints. We define an ecological discount rate and examine its connections with the usual interest rate and the optimized growth rate. We discuss, in this simple world, di§erent forms of the precautionary principle and show that cost-beneÖt analysis should overweigh in a spectacular way the probabilities of the events associated with bad environmental outcomes.