Individual and Social optimality of Intergenerational Investments

Abstract

Conventional evaluation methods, as the net present value, consider any future consumption applying the time preference of present individuals. A more coherent analysis requires distinguishing between time preferences and the preferences about the consumption to be enjoyed by the individuals of future generations. In this paper we use an overlapping generations model with intergenerational altruism for studying optimality conditions of intergenerational investments. This tool allows us to consider the problem of intergenerational allocation without obviating the individuals’ intertemporal allocation of consumption.Cost-benefit analysis, Future generations, Intergenerational altruism, Net present value, Project appraisal, Time discounting