This is a nice post that touches on many important topics. One little note for future reference: I think the logic in the section ‘Extended Ramsey model with estimated discount rate’ isn’t quite right. To start it looks like the inequality is missing a factor of ‘b’ on the lefthand side. More importantly, the result here depends crucially on the context. The one used is log utility with initial wealth equal to 1. This leads to the large, negative values for small delta. It also makes cost-effectiveness become infinitely good as delta become small. This all makes it much more difficult to think intuitively about the results. I think the more appropriate context is with large initial wealth. The larger the initial wealth (and the larger the consumption each year) the less important delta becomes, relatively. For large initial wealth, it is probably correct to focus on improving ‘b’ (i.e. what the community does currently) over delta. My point here is not to argue either way, but simply that the details of the model matter—it’s not clear that delta has to be super important.
This is a nice post that touches on many important topics. One little note for future reference: I think the logic in the section ‘Extended Ramsey model with estimated discount rate’ isn’t quite right. To start it looks like the inequality is missing a factor of ‘b’ on the lefthand side. More importantly, the result here depends crucially on the context. The one used is log utility with initial wealth equal to 1. This leads to the large, negative values for small delta. It also makes cost-effectiveness become infinitely good as delta become small. This all makes it much more difficult to think intuitively about the results. I think the more appropriate context is with large initial wealth. The larger the initial wealth (and the larger the consumption each year) the less important delta becomes, relatively. For large initial wealth, it is probably correct to focus on improving ‘b’ (i.e. what the community does currently) over delta. My point here is not to argue either way, but simply that the details of the model matter—it’s not clear that delta has to be super important.