Low discount rates and insignificant environmental values
AbstractDifference between the discount rate on consumption and the rate of return on investment is often taken to prevent the former's being used as a social discount rate. Yet techniques have long been known for incorporating both these rates in a shadow price of investment funds. Assumptions about the proportion of investment revenues saved and reinvested are crucial in determining whether a low discount rate favours or discriminates against long-term environmental values. Even a moderate saving rate may make the shadow price of funds indefinitely large. The conceptually correct discount rate then becomes the growth rate of investment funds, and the relative value of environmental effects becomes zero. Stochastic variation in rate of return makes this result more likely. Such an outcome may be avoided by setting reinvestment to zero, or assuming convergence of rates of return and discount, but no firm justification exists for these stratagems. However, various reasonable assumptions about environmental costs - especially, that they embody an investment element, or require adequate compensation to be paid - may make such costs indefinite also, and therefore capable of standing against indefinite values of investible funds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Ecological Economics.
Volume (Year): 69 (2010)
Issue (Month): 10 (August)
Contact details of provider:
Web page: http://www.elsevier.com/locate/ecolecon
Discounting Shadow price of investment funds Environmental values Compensation;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lyon, Randolph M., 1990. "Federal discount rate policy, the shadow price of capital, and challenges for reforms," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S29-S50, March.
- Sandmo, Agnar & Dreze, Jacques H, 1971. "Discount Rates for Public Investment in Closed and Open Economies," Economica, London School of Economics and Political Science, vol. 38(152), pages 395-412, November.
- Harry F. Campbell, 1981. "Shadow-Prices for the Economic Appraisal of Public Sector Expenditures," Canadian Public Policy, University of Toronto Press, vol. 7(3), pages 395-398, Summer.
- Sjaastad, Larry A & Wisecarver, Daniel L, 1977. "The Social Cost of Public Finance," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 513-47, June.
- Stefan Bayer, 2003. "Generation-adjusted discounting in long-term decision-making," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 6(1), pages 1133-149.
- Nichols, Alan, 1971. "Normalisation Procedure for Public Investment Criteria: Further Comment," Economic Journal, Royal Economic Society, vol. 81(321), pages 122-25, March.
- Padilla, Emilio, 2002. "Intergenerational equity and sustainability," Ecological Economics, Elsevier, vol. 41(1), pages 69-83, April.
- Nichols, Alan, 1969. "On the Social Rate of Discount: Comment," American Economic Review, American Economic Association, vol. 59(5), pages 909-11, December.
- Fisher, Anthony C & Krutilla, John V, 1975. "Resource Conservation, Environmental Preservation, and the Rate of Discount," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 358-70, August.
- Lind, Robert C., 1990. "Reassessing the government's discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S8-S28, March.
- C. Price, 1991. "Do High Discount Rates Destroy Tropical Forests," Journal of Agricultural Economics, Wiley Blackwell, vol. 42(1), pages 77-85.
- Sumaila, Ussif R. & Walters, Carl, 2005. "Intergenerational discounting: a new intuitive approach," Ecological Economics, Elsevier, vol. 52(2), pages 135-142, January.
- Colin Price, 2003. "Diminishing marginal utility: the respectable case for discounting?," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 6(1), pages 117-132.
- Rabl, Ari, 1996. "Discounting of long-term costs: What would future generations prefer us to do?," Ecological Economics, Elsevier, vol. 17(3), pages 137-145, June.
- Colin, Price, 2011. "Optimal rotation with declining discount rate," Journal of Forest Economics, Elsevier, vol. 17(3), pages 307-318, August.
- AlekneviÄienÄ—, Vilija & StonÄiuvienÄ—, Neringa & ZinkeviÄienÄ—, DanutÄ—, 2013. "Determination of the fair value of a multifunctional family farm: a case study," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 115(3), December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.