and if you want to read a good, kindof non-tech friendly discussion of the econo0mics of climate change try the following by Geoffrey Heal (a Columbia University environmental economist).
http://www2.gsb.columbia.edu/faculty/gheal/Climate-Change-Review.pdf

As regards the treatment of people in poor countries, if you buy the full utilitarian package implicit in the economics treatment, attitudes to discounting and income redistribution are closely tied up. With the assumptions in Stern, a dollar of extra income to someone in Bangladesh with an income of $500 is valued the same as $100 of extra income to someone in the US with an income of $50 000. So that favours quite a lot of weight on the poor compared to maximizing GDP.

I cover this in more detail here (PDF)

Weisbach/Sunstein footnote 5
“A final important difference between Stern and Nordhaus is that Stern, at the end of the day, abandons economic analysis in favor of the intuition that concentrations of carbon dioxide over 550 parts per million impose an excessive risk on humanity. Nordhaus maintains a consistent economic analysis throughout his model.”

“Intuition”? The authors use this phrase at least three times in order to describe the Sern review. They are denialists. Maintaining CO2 levels at 550ppm means a rise of 4°C and would be catastrophic for humanity. CO2 concentrations must be reduced to 35oppm as quickly as possible, by any means necessary, and emissions reduced to zero by 2050 or sooner. Then we can start removing the excess carbon we put there.

The central theme of modern economics is the assumption of natural abundance. There is no model for how “externalities”, such as an ecological collapse, can lead to an economic collapse, because the basic factors are left out of the econometric models. Given this, big picture economic predictions are useless with regard to adapting to climate change.

The logic is that if the return on equity is the cost of capital to corporations, and if that return is well above what it should be based on expected income and risk from equity ownership, then the cost of capital is higher than it would be in a perfect market, and hence we are investing less than the optimal amopunt given current tastes, technologies, and endowments.

Of course, the first “if” is false—equity finances only a trivial fraction of investment. So the second “if”—the focus of Henry’s paragraph you quoted—is largely irrelevant.

Maybe I’m totally confused by jargon or something, but how do you calculate a ‘socially optimal rate of return’? Does someone have a link to how the term is used in its technical sense? Because in a layman’s understanding of ‘rate of return’ if there were a regular and safe investment that produced very high rates of return, that wouldn’t be a bad thing. (For example if someone invented some cheap-to-produce robot that instantly quadrupled the manufacturing output capability of everything, that would be good, right?) Or maybe I’m confusing financial return with output on investment?

I might change my mind but discounting at the market rate of return just seems
silly.

I mean why is the assumption that in the real world the alternative to the tax is money invested in the market?

I always wonder why progessives don’t worry about that more.

Surely the real world cost is the guess at real GDP lost.

Ok, now, I am on page 29 and I think the same thing.

Ok, I am done. Loose read on my part but I still think the same thing.

I don’t think they can really mean to say we should use the market rate of return.

Either I mis-read or they mis-spoke or both or is there something else I am missing.

I also missed how the paper was right wing.

“…the two fields must be combined to produce analyses that can usefully guide society’s response to a changing climate. For instance, regional changes in precipitation could have important impacts on agriculture and infrastructure needs. Only by combining detailed modelling of economic responses with spatially and temporally complex climate projections can we appropriately direct resources for mitigation and adaptation. Without the synthesis of these fields, policy responses can be incoherent and counter-productive, as in the case of the recent rush to biofuels.”

More discussion at Real Climate – “Bridging the divides”

From the perspective of, say, the framers of the Versailles Treaty, what would an appropriate discount rate have been for the expected loss of GDP from a potential world war 25 years later? And more importantly, would such a calculation have shed any light on the importance of preventing that war?

It shouldn’t be. (I can’t read the paper right now.)

Normally, you have a discount for pure time preference (δ) and a discount for the uncertainty of the future.

Stop right there – any involvement with AEI beyond snagging some free food at their events [1] is a serious mark against somebody’s honesty.

Considering that Cass is also a U chicago law professor, this is pretty much proof that he’s one of the bad guys.

[1] And that only if you sneeze on the food, to infect the AEI guys with something.

It’s not very good. Weisbach and Sunstein are lawyers rather than economists, fair enough, but the first half of the paper which discusses discount rates ignores risk completely. This is OK at a first-year level, I guess.

But the second half of the paper starts off with:

The second term is δ, the rate at which we discount future generations. The ethicists call it the “pure rate of time preference.” It reflects a lower evaluation of future generations simply
because they are distant from us.

This “future generations” stuff is just rubbish. δ is just the same discount rate they’ve spent the first half of the paper trying to explain.