Calibration of Fair Social Discount Rate in Utilizing Iran Oil Resources: An Islamic View Point

Document Type: Research Paper

Authors

1 Professor of Imam Sadiq University

2 Ph.D student of Imam Sadiq University

Abstract

There is a long tradition in economics about the question of whether intergenerational discounting is fair or not. Ramsey (1928) was the first economist that criticized the discounting and mentioned that the just rate of discounting is zero.  In this paper it was tried to calculate the just rate of discounting for Iran with respect to Islamic thoughts. According to Islam, intergenerational justice had been regarded when oil revenue was totally invested in other kinds of capital. So, we tried to calculate the social discount rate for Iran in current situations and after imposing the Islamic condition of intergenerational justice an overlapping generations’ model was used.  Finally, our calculation showed that the value of social discount rate is 0.04 before imposing the intergenerational justice condition and -0.014 after it. Then, it was explained that in current economic situations of Iran, the best social discount rate which can satisfy the intergenerational justice, was an amount between zero and minus one.

Keywords


Altig, D., Auerbach, A., Kotlikoff, L., Smetters, K., & Walliser, J. (2001). Simulating fundamental tax reform in the United States. American Economic Review, 91(3): 574-595.

Amini, A. R., & Neshat, H. M. (2005). Statistics Stimation of Fixed Capital Inventory Time-Series in Different Economic Sectors Within 1959-2002. The Journal of Planning & Budgeting, No. 90: 53-86.

Arrow, K. et al. (2004). Are we consuming too much? The Journal of Economic Perspectives, 18(3): 147-172.

Auerbach, A. J. & Kotlikoff, L. J. (1987). Dynamic fiscal policy. NY: Cambridge University Press.

Baumol, W. J. (1968). On the social rate of discount. The American Economic Review, 58(4):788-802.

Broer, D. P., Westerhout, E. W. M. T. & Bovenberg, A. L. (1994). Taxation, pensions, and saving in a small open economy. Scandinavian Journal of Economics, 96(3), 403– 424.

Dasgupta, P. S. & Heal, G. M. (1974). The optimal depletion of exhaustible resources.  Revenue of Economic Studies, Symposium 1974:3-28.

Farmer, M. & Randall, A. (1997). Policies for sustainability: Lessons from an overlapping generation model. Land Economics, 73 (4):608–22.

Halicioglu, F. & Karatas, C. (2011). A social discount rate for Turkey. MPRA Paper, No. 32925.

Harrod, R. (1948). Towards a dynamic economics. Macmillan: London.

Hepburn, C. (2006). Valuing the far-off future: discounting and its alternatives. Retrieved from http://www2.lse.ac.uk/Grantham Institute/publications/research-articles/Docs/discount-rates-climate-change-policy.pdf. 

Howarth, R. B. (2007). Sustainability and the fair-sharing principle. Environmental Studies Program Dartmouth College. Hanover: New Hampshire 03755.

Howarth, R. B. (1997). Sustainability as opportunity. Land Economics, 73(November 1997): 569-79.

Kotlikoff, L., Kent A., S., & Walliser, J. (2001). Distributional effects in a general equilibrium analysis of social security. In M. Feldstein (Ed.), The distributional effects of social security reform. Chicago: University of Chicago Press.

Lau, M. I., Pahlke, A., & Rutherford, T. F. (2001). Approximating Infinite-Horizon Models in a Complementarity Format: A Primer in Dynamic General Equilibrium Analysis.  Journal of Economic Dynamics and Control, 2002, 26(4), 577-609.

Lopez, H. (2008). The social discount rate: Estimates for nine Latin American countries. The World Bank: Policy Research Working Paper 4639.

Moore, M. A., Boardman, A. E., Vining, A. R., Weimer, D. L. & Greenberg, D. H. (2004). "Just Give Me a Number!" Practical Values for the Social Discount Rate. Journal of Policy Analysis and Management, 23(4): 789–812.

Parker, C. (2009). The implications of discount rate reductions on transport investments and sustainable transport futures. NZ Transport Agency research report 392.

Pigou, A. C. (1932). The economics of welfare. 4th ed., London: Macmillan.

Ramsey, F. (1928). A mathematical theory of saving”. The Economic Journal, 38(152): 543–559.

Rasmussen, T. N., & RUTHERFORD, T. F. (2004). Modeling overlapping generations in a complementarity format. Journal of Economic Dynamics and Control, 28, 1383–1409.

Rasmussen, T. N., & RUTHERFORD, T. F. (2001). Modeling Overlapping Generations in a Complementarity Format. Retrieved from wwwgamsworld.org/ mpsge/debreu/olgmcp/olgmcp.pdf.

Rausch, S., & RUTHERFORD, T. F. (2010). Computation of equilibria in OLG models with many heterogeneous households. Retrieved from dspace.mit.edu/openaccess-disseminate/1721.1 /67034.

Rausch, S., & RUTHERFORD, T. F. (2007). Computation of equilibria in OLG models with many heterogeneous households. Retrieved from www.mpsge.org/srolg.pdf.

Roumboutsos, A. B. (2010). Sustainability, social discount rates and the selection of project procurement method. Advanced Economic Research (2010), 16:165–174.

Shahmoradi, A., Kavand, H., & Nadri, K. (2010). Estimation of The Equilibrium Rate of Interest in Iranian Economy: A General Equilibrium Approach. Tahghighat-e- eghtesadi, No. 90: pp. 19-41.

Spackman, M. (2011). Government discounting controversies: changing prices, opportunity costs and systematic risk. Centre for Climate Change Economics and Policy, Working Paper No. 76.

Sidgwick, H. (1907). The methods of ethics. MacMillan: London, 1999.

Solow, R. (1974). The economics of resources or the resources of economics. American Economic review, 64 (1974):1-14.

Streich, P., & Levy, J. (2007). Time horizons, discounting, and intertemporal choice. The Journal of Conflict Resolution, 51(2): 199-226.