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Description, prescription and the choice of discount rates

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  • Baum, Seth D.
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    Abstract

    The choice of discount rates is a key issue in the analysis of long-term societal issues, in particular environmental issues such as climate change. Approaches to choosing discount rates are generally placed into two categories: the descriptive approach and the prescriptive approach. The descriptive approach is often justified on grounds that it uses a description of how society discounts instead of having analysts impose their own discounting views on society. This paper analyzes the common forms of the descriptive and prescriptive approaches and finds that, in contrast with customary thinking, both forms are equally descriptive and prescriptive. The prescriptions concern who has standing (i.e. who is included) in society, how the views of these individuals are measured, and how the measurements are aggregated. Such prescriptions are necessary to choose from among the many possible descriptions of how society discounts. The descriptions are the measurements made given a choice of measurement technique. Thus, the labels "descriptive approach" and "prescriptive approach" are deeply misleading, as analysts cannot avoid imposing their own views on society.

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    Bibliographic Info

    Article provided by Elsevier in its journal Ecological Economics.

    Volume (Year): 69 (2009)
    Issue (Month): 1 (November)
    Pages: 197-205

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    Handle: RePEc:eee:ecolec:v:69:y:2009:i:1:p:197-205

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    Web page: http://www.elsevier.com/locate/ecolecon

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    Keywords: Discounting Cost-benefit analysis Ethics Social choice Democracy Climate change;

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    Cited by:
    1. Seth Baum & William Easterling, 2010. "Space-time discounting in climate change adaptation," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 15(6), pages 591-609, August.
    2. Sarkar, Sudipto, 2012. "Attracting private investment: Tax reduction, investment subsidy, or both?," Economic Modelling, Elsevier, vol. 29(5), pages 1780-1785.
    3. Defrancesco, Edi & Gatto, Paola & Rosato, Paolo, 2014. "A ‘component-based’ approach to discounting for natural resource damage assessment," Ecological Economics, Elsevier, vol. 99(C), pages 1-9.
    4. Peter Skott & Leila Davis, 2011. "Distributional biases in the analysis of climate change," UMASS Amherst Economics Working Papers 2011-22, University of Massachusetts Amherst, Department of Economics.
    5. Seth D. Baum, 2012. "Value Typology in Cost-Benefit Analysis," Environmental Values, White Horse Press, vol. 21(4), pages 499-524, November.
    6. Aronsson, Thomas & Johansson-Stenman, Olof, 2011. "Animal Welfare and Social Decisions," Working Papers in Economics 485, University of Gothenburg, Department of Economics.
    7. Howard, Gregory, 2013. "Discounting for personal and social payments: Patience for others, impatience for ourselves," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 583-597.

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