“Discounting and the Representative Median Agent”, a Paper Co-authored by FEEM
research, Emmerling et al. show that by using the growth of the mean income in
the Social Discount Rates (SDR), changing income inequalities are ignored – an
important omission for public policy analysis. The study proposes an
‘inequality-adjusted’ SDR based on the representative
median agent, that takes changing inequalities into
account. It uses the difference between growth of the mean and median incomes
to better represent the economic growth experienced by the majority of society.
This measure could augment guidelines on public investment, since median income
growth is routinely collected by national statistical organizations. The
findings could also augment international guidelines on the estimation of
the social cost of carbon.