by Olivier Guéant (Cahier de la Chaire n°23)
This general readership article proposes an approach to evaluate what an economically and socially acceptable cost can be in the context of policies that aim at improving the environment. We stress the difficulty of considering a pre-determined utility function and propose an unusual methodology which is based on considering a distribution on the space of utility functions. One of our outcomes is a microeconomic foundation of the precautionary principle: the simple fact of hesitating between several utility functions invites to use the most environment-friendly one.
Keywords: Precautionary principle, Long term discount rate, Ecological discount rate, Sustainable development