Ben Groom
School of Oriental and African Studies,
University of London

Descriptive: Problematic
 Puzzles
 Restrictive preferences: ‘siblings not triplets’
 Externalities and other imperfections
 Ethics of market rates

Prescriptive
 A particular SWF
 Optimal?

Non-marginal impacts
Aggregation
Representative agent and population
Compensation Criterion

Descriptive vs prescriptive



 Neither measures changes in welfare precisely
 Show profiles and distributions of benefits and
costs

h:Social siblings

r: Social
 Stern approach seems fair
 Agent relative ethics?

Point estimates in time or space?
 Aggregation

Applied Social Ethics
 Reflective
 ‘Mock referendum’ (Kopp and Portney 1999, Sen 1967?)
2.40
2.20
Inequality A vers ion
Inequality A vers ion (+ 20% )
2.00
Inequality A vers ion (-20% )
1.80
1.60
1.40
1.20
1.00
1945
1955
1965
1975
1985
1995
2005



In growth: Extend Ramsey, welfare analysis
In parameters? Monte Carlo
Uncertainty or heterogeneity?
 Jouini, Marin and Napp (2010), Weitzman (2001)
ri  ri  h gi
 Beliefs differ about r and g:
R
JMN

i ri
1 
exp  ri H 
 H    ln 
H  i  i ri

 RWeitz  H   
1 1

ln   exp  ri H 
H n i


Gollier and Weitzman (2010):





General preferences, production economy
Perfectly elastic supply of the risk free asset
ENPV valid with log preferences
Otherwise risk adjustment/’term premium’
Freeman (2010)




Time inseparable prefs, risk neutral, exchange economy
C(0) fixed: perfectly inelastic
ENPV valid more generally
See Traeger (2011)

Historical Data
 Model selection: Econometric methods plus
intuition
 Data: inflation, smoothing, negative values, etc.

Expert Opinion
 Persistence due to ‘irreducible disagreement’
 Normative: no true value, irreducible
 Positive: forecast error about true value
Historical Data
Model
SCC
State Space
14.4
Random Walk
10.4
Mean
Reverting
6.4
Constant 4%
5.74



ri  rH   i ,
Unbiased
is diagonal
Where the CLT holds:
E  i   0 i
 rH   N rHn ,  2 / n

E exp  rH    exp  ri H    rH  dri
0
R
FG
H   r
n
H
 0.5
 2H
n
4
3
2
N = 1000
N = 100
N = 25
N = 10
Gamma Discounting
1
0
2010
2100
2200
Year
2300
2400
5
4
3
2
N = 1000
N = 100
N = 25
N = 10
Jouini and Napp
1
0
2010
2100
2200
Year
2300
2400
Expert opinion
(Weitzman 2001)
(Jouni and Napp, 2010)
Method
SCC
Method
SCC
Prescriptive
15.02
Prescriptive
10.01
Descriptive
(N=10)
6.10
Mixed
(N = 10)
4.65
Descriptive
(N=1000)
5.38
Mixed
(N =1000)
4.01
Constant 4%
5.34
Constant 5%
4.00

Non-independent experts
 ‘Schools of thought’ vs idiosyncratic


ri  x  wik rk  1  x  i
K
k
 x * 1  x  
N     1 


n
K  
 K
2
2
1
x  0.5
x  0.75
K  10
K  10
n  2160  N  34
n  2160  N  18