Hi Johannes, thank for all the detailed thoughts. I think we’re probably reaching diminishing marginal returns in debating point by point. I will say that we agree that the Rennert et al projections are too pessimisitic, and difficult far future projections can matter a lot with low discounting. Though I think we will need to agree to disagree on the magnitudes of these changes.
There is one technical point that I’d like to bring to your attention, though, that I think does critically matter. The Rethink application of a new discount rate is NOT a 0% discount rate. It is a 0% “rate of pure time preference”, which is one component of the discount rate. (I’m going to modify my original post to clarify.) Rethink’s calculation is built on calculations from the German Environmental Agency, so I will directly reproduce their explanations for how they did discounting:
“we use the social discount rate developed by Frank Ramsey (Ramsey 1928), which combines the two aspects above: expected consumption growth, weighted by its effect on the marginal utility of consumers, and the pure rate of time preference (PRTP).
In the GIVE model the consumption growth rate is a dependent variable. Therefore, it is not possible to specify the exact discount rate used for the climate costs”
I am not familiar enough with these models to get a good intuition for what discount rate would be, and therefore how much weight will be places on the far future. But as a reference, the Stern Review also used Ramsey discounting and a low (.1% PRTP), and resulted in an overall discount rate of 1.4%.
All of this to say, I think a simple mental model of “no discounting”, and therefore the vast majority of damages being in the far future, is not a good description of the Rethink analysis.
Hi Johannes, thank for all the detailed thoughts. I think we’re probably reaching diminishing marginal returns in debating point by point. I will say that we agree that the Rennert et al projections are too pessimisitic, and difficult far future projections can matter a lot with low discounting. Though I think we will need to agree to disagree on the magnitudes of these changes.
There is one technical point that I’d like to bring to your attention, though, that I think does critically matter. The Rethink application of a new discount rate is NOT a 0% discount rate. It is a 0% “rate of pure time preference”, which is one component of the discount rate. (I’m going to modify my original post to clarify.) Rethink’s calculation is built on calculations from the German Environmental Agency, so I will directly reproduce their explanations for how they did discounting:
“we use the social discount rate developed by Frank Ramsey (Ramsey 1928), which combines the two aspects above: expected consumption growth, weighted by its effect on the marginal utility of consumers, and the pure rate of time preference (PRTP).
In the GIVE model the consumption growth rate is a dependent variable. Therefore, it is not possible to specify the exact discount rate used for the climate costs”
I am not familiar enough with these models to get a good intuition for what discount rate would be, and therefore how much weight will be places on the far future. But as a reference, the Stern Review also used Ramsey discounting and a low (.1% PRTP), and resulted in an overall discount rate of 1.4%.
All of this to say, I think a simple mental model of “no discounting”, and therefore the vast majority of damages being in the far future, is not a good description of the Rethink analysis.