Partha Dasgupta and Eric Maskin - Erik Kempe Award 2007

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Partha Dasgupta and Eric Maskin were the winners of the 2007 EriK Kempe Award, for their article "Uncertainty and Hypoerbolic Discounting", published in American Economic Review, 95(4), pp. 1290-1299, 2005.

The Nomination Committee, composed by Thomas Aronsson, Aart de Zeeuw, and Michael Finus, has awarded this paper for the following motivation:

The way in which we choose to discount the future is arguably one of the most important decisions that social scientists make in appraising many global environmental policies (preventing global warming, protecting endangered species, etc). The idea of hyperbolic discounting has found its way into cost-benefit practice, although its practice has been criticized on grounds of dynamic inconsistency. Dasgupta and Maskin provide an evolutionary explanation for hyperbolic discounting based on uncertainty over when in the future the impacts of alternative actions are going to be realized. Although the behavior predicted is dynamically consistent, it appears inconsistent. The authors show that the optimal decision means being relatively patient when the time horizon is long and impatient when the horizon grows short. Though the precise implications of this for social discounting remain for exploration, this paper ­ written by two of the pre-eminent economists of our generation, and appearing in the world’s leading economic journal - seems to offer an important foundation for attaching higher weights to the distant future than standard exponential discounting would suggest.

 

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