The Stern Review on the Economics of Climate change: δ and η?
I have been reading through stuff about the review including various critics and am still unsure exactly what delta and eta represent. I would appreciate it if someone could explain (sources would really help).
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delta = the rate of subjective time preference.
The discount factor applied to future costs and benefits.
You need it, b/c if you assume that benefits 100 years from now are as good as today's, projects with perpetual benefits all have infinitely large NPV, which makes it hard to compare them.
eta = the elasticity of marginal utility with respect to consumption. Basically how much people benefit from more consumption (given how much they have already)