« Taking death panels seriously | Main | Alex Tabarrok on Economic Mobility »



Feed You can follow this conversation by subscribing to the comment feed for this post.

Daniel S. Goldberg

Trying to understand. Last two sentences of the post:

"Broome's view is that if people in the future really will be better off than we are, then we really do have reason to discount the value of future commodities. But this same reason suggests that cost-benefit analysis should no longer ignore the fact that the same commodity brings more benefit to the current poor than it would if enjoyed by the current rich."

What is "this same reason" in the second sentence? Why is it the case that if people in the future will be better off that we should no longer ignore the fact that the same commodity brings more benefit to the current poor?

I'm having trouble seeing the connection. (Not challenging you, want more explanation!)


Hi D,

The "same reason" is the phenomenon of diminishing marginal utility, i.e. the reason we have to treat a benefit to a (relatively) rich person as less valuable than the same benefit to a (relatively) poor person.

Broome's notes that this reason is invoked by cost-benefit analysts to support their actual practice of discounting the value of future commodities, since it is assumed that people in the future will be richer than we are now. The "irony" is that analysts ignore this reason when they they refuse to treat a benefit to a current rich person as less valuable than a benefit to a current poor person.

So cost-benefit analysts invoke the phenomenon of diminishing marginal utility when it is in the interest of the current rich (i.e. in the inter-generational case) but they refuse to invoke the phenomenon when it would be in the interest of the current poor (i.e. in the intra-generational case).

Daniel S. Goldberg

Ah, think I got it. But the irony you note, at least in the second scenario, is not related to future discounting. I mean, the issue is the fact that the affluent experience DMU from welfare benefits now as compared to the poor. But that's a present-case scenario, and the reason for the DMU has nothing to do with future discounting.

The latter comes into play when we talk about the inter-generational case, of course. DMU is the justification for future discounting, right?

I wonder if there is any reason for the divergent treatment related to the generational difference, but I can't think of one so long as the underlying rationale (DMU) is the same in both.



The irony is simply that DMU is invoked to justify discounting benefits to the better off in the inter-generational case, but not in the intra-generational case (despite also being relevant there).

As Broome notes, the DMU reason for discounting the value of certain benefits (whether inter- or intra-generationally) is not intrinsically related to time. You're right about that.

Daniel S. Goldberg

Thanks! I'm just a caveman bioethicist, you know.


At least you're unfrozen!

Brad F

In an analysis like you are suggesting, aside from the discount rate and its value, how do you differentiate the well-being a food item, say rice, and a computing device, provide for a rich and poor individual 30 years hence?

Essentially, do you really know which has a greater decreasing marginal utility at a particular time for a given class? I would think not for many goods.



I Brad,

I don't do these calculations myself, so I have no earthly clue how they are done. Obviously no one in 1960 could have predicted the iPod, so they could not have predicted the impact that an iPod would have on the well-being of someone in 2012. We face similar hurdles as we look forward, surely.

My guess is economists feel confident in making generalizations about how rich society will be in the future, based in part on historical data extending backward in time from now. Also, they don't have to predict the existence of iPods and the like, since the claim about diminishing marginal utility is a claim about the welfare generated by any commodity at a given price. So they only need to make claims about commodities of given prices. After all, economists do not impute value to an iPod today on the basis of asking people how much their lives are made better by having an iPod. Those calculations are based simply on how much people pay for iPods. Likewise, economists want to say only that, given how well-off we expect people in general to be in 2100, a commodity priced then at $100 (adjusted for inflation) gives them less well-being than does a $100 commodity for us today, and this is precisely because we are poor than they will be.

That is a bunch of rambling, obviously.

The comments to this entry are closed.

My Photo

Become a Fan