Policies for Sustainability: Lessons from an Overlapping Generations Model

Discounting is often considered inimical to sustainability. Reliance on the assumption that endowments regulate the transfer of assets to the future in standard growth models interprets the interest rate in the intergenerational context as a partial reflection of myopia. A more complete market model that allows agents from different generations to engage in long-term contracts with one another severs the movement of capital to the future from the endowment assumption. Adherence to the endowment assumption as a de facto market structure, not simply a modeling convenience, endorses sustainability policies that injure the future.