Avoiding Intergenerational Discounting on Sustainability Investments

This thesis describes the process in which a Two-Generation model and N-Generation model can determine the optimal levels of investment in sustainability without applying a discount rate to the benefits to future generations. These models constrain utility so that utility for each generation is equivalent; these models do not dilute the benefits to future generations, which promotes equity between generations and reflects the fact that Generation 2 will have to pay off the remaining balance on the sustainability investment. The models demonstrated that as the Generation 2’s expected value of a resource increases, the level of utility of both generations and total level of optimal investment should increase. In addition, while altruism can increase the utility of each generation, Generation 1’s level of altruism does not have an impact on the optimal level of total investment. Finally the Two-Generation model indicates that subsidizing interest rates for sustainability can be an effective way to increase investment levels. The N-Generation model demonstrates that thinking long-term will have a negative impact on the utility of the current generation; utility will decrease as the number of generations accounted for increases because of the competition among generations for scarce resources. While one generation may have to sacrifice, this model determines the level of investment in sustainability that maximizes utility across the generations and can help ensure that the trend of increasing utility continues.