Calibration of Fair Social Discount Rate in Utilizing Iran Oil Resources: An Islamic View Point

Abstract

There is a long tradition in economics about the question of whether intergenerational discounting is fair or not. Ramsey (1928) was the first economist that criticized the discounting and mentioned that the just rate of discounting is zero. In this paper it was tried to calculate the just rate of discounting for Iran with respect to Islamic thoughts. According to Islam, intergenerational justice had been regarded when oil revenue was totally invested in other kinds of capital. So, we tried to calculate the social discount rate for Iran in current situations and after imposing the Islamic condition of intergenerational justice an overlapping generations' model was used. Finally, our calculation showed that the value of social discount rate is 0.04 before imposing the intergenerational justice condition and -0.014 after it. Then, it was explained that in current economic situations of Iran, the best social discount rate which can satisfy the intergenerational justice, was an amount between zero and minus one.