Asset Valuation: The Ethical Foundation of Value Choice
Asset valuation is more than just a financial technique; it is, above all, ethics in disguise. By deciding the price of time and risk, we silently determine the well-being of people yet to be born. Christian Gollier bases this theory on two pillars: the principle of impartiality (Rawls’s veil of ignorance) and formal rationality. This approach leads to intergenerational utilitarianism, where social welfare is the sum of the utilities of all individuals, whether they live today or will be born in a century. Valuation thus becomes a procedure for establishing which prices align with the vision of a just society.
The Ramsey Rule Sets the Discounting Threshold
A key tool in this process is the Ramsey rule, which links the social discount rate to inequality aversion and expected consumption growth. The intuition is simple: if future generations are wealthier, transfers to them deepen inequality, justifying higher discounting. However, in a world full of uncertainty, compound interest hits moral limits. Growth uncertainty and the risk of catastrophes mean the discount rate should have a declining structure. The longer the time horizon, the stronger the precautionary argument becomes, driving rates for the distant future toward zero.
Ecological Goods: Lower Rates for Scarce Resources
The economic analysis of intangible goods requires an additional step. Ecological goods, such as a stable climate or biodiversity, are becoming increasingly scarce, justifying the use of lower or even negative discount rates. The valuation of public projects is also determined by the social beta, which measures the correlation of benefits with overall welfare. Low-beta investments act like an insurance policy—they yield returns during "lean years" when consumption is low. Their social value is higher, justifying preferential treatment in economic calculations.
Scandinavia vs. Germany: Cultural Models of Time Valuation
The practical application of these theories reveals differences between national models. Scandinavian countries promote an ethos of long-term responsibility, applying low rates to climate projects. In contrast, Germany, faithful to ordoliberalism, emphasizes fiscal rigor and the debt brake. Meanwhile, the short-termism of financial markets blocks the accurate valuation of time and non-financial impacts. ESG investing attempts to fill this gap, replacing accounting profit with a measure that accounts for the social cost of carbon. However, the electoral cycle and fiscal illusion remain obstacles, prompting politicians to favor immediate benefits at the expense of future generations.
The Veil of Ignorance: Turning Inequality into Risk
By applying the veil of ignorance, a decision-maker evaluates justice without knowing their own social position, transforming the problem of distribution into one of existential risk. A powerful metaphor for this responsibility is the child bond—an instrument payable in a hundred years, whose current value precisely measures our concern for posterity. Yet, we must recognize that existential risks mark the end of utilitarian logic. The irreversible loss of biodiversity may be ethically unacceptable, regardless of the calculation's outcome. Is the true art of valuation not the ability to hear the echo of the future in the whispers of the present? In the final analysis, asset valuation is a valuation of our own humanity.
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