In this new book, Pr Gollier builds a bridge between welfare economics and finance theory to provide a framework for ethical valuation capable of establishing what asset prices should be on the basis of our shared moral values.
Financial markets played and ever growing role in the allocation of capital in our economies, and therefore is a key element to shape our collective destiny. Should we trust them to aggregate our individual and collective aspirations into price signals such as interest rates and risk premia that govern the world ? Financial economists have long pointed out the many sources of inefficiencies that surround most financial contracts and institutions, such as asymmetric information and moral hazard. The corollary of this observation is that we don’t really know whether individual saving decisions, corporate investment choices and market-driven public policies are compatible with the common good. In particular, we don’t really know whether we collectively invest enough for the future, or whether we take too much risk. In this book, we derive simple rules from transparent moral principles to evaluate saving and investment decisions. Escaping the mathematical technicalities that surround standard cost-benefit analysis and financial asset pricing theory, we describe the determinants of a system of values to evaluate private and public choices. We are particularly interested in the role of discounting for the valuation of long-dated assets and investments, in link with the debate on corporate short-termism and on climate change. We promote the idea that the rate at which one should discount risk-free long-term benefits should be small.