Market failure to sufficently weigh the future?

From: Robin Hanson (
Date: Fri Oct 27 2000 - 09:17:41 MDT

The following article makes a more plausible argument than I would
have thought possible that private choices fail to put sufficient
weight on the future. The paper does note, however, that governments
seem to place even less weight on the future that private parties do.

The Social Discount Rate
Andrew Caplin, John Leahy
NBER Working Paper No. W7983 Issued in October 2000

In welfare theory it is standard to pick the consumption stream that
maximizes the welfare of the representative agent. We argue against this
position, and show that a benevolent social planner will generally place a
greater weight on future consumption than does the representative agent. Our
analysis has immediate implications for public policy: agents discount the
future too much and the government should promote future oriented policies.

Robin Hanson
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323

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