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Abstract

The paper shows how limited substitutability in consumption between different classes of goods affects the magnitude and time development of social discount rates. It decomposes the discount rates into an absolute growth and a relative growth or substitutability effect. The paper relates between-good and intertemporal substitutability to the notions of weak and strong sustainability. It analyzes under which circumstances low as opposed to high between-good substitutability increases the weights given to long-run environmental services.

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File URL: http://www.sciencedirect.com/science/article/pii/S0095069611000349
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 62 (2011)
Issue (Month): 2 (September)
Pages: 215-228

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Handle: RePEc:eee:jeeman:v:62:y:2011:i:2:p:215-228

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Environmental discount rate Hyperbolic Limited substitutability Non-constant discounting Project evaluation Social discount factor Social discount rate Strict sustainability Strong sustainability Weak sustainability;

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References

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1. Sterner, Thomas & Persson, U. Martin, 2007. "An Even Sterner Review: Introducing Relative Prices into the Discounting Debate," Discussion Papers dp-07-37, Resources For the Future.
   
   • Thomas Sterner & U. Martin Persson, 2008. "An Even Sterner Review: Introducing Relative Prices into the Discounting Debate," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 61-76, Winter.
2. Weikard, Hans-Peter & Zhu, Xueqin, 2005. "Discounting and environmental quality: When should dual rates be used?," Economic Modelling, Elsevier, vol. 22(5), pages 868-878, September.
3. Ravi Bansal & Amir Yaron, 2004. "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles," Journal of Finance, American Finance Association, vol. 59(4), pages 1481-1509, 08.
   
   • Ravi Bansal & Amir Yaron, 2000. "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles," NBER Working Papers 8059, National Bureau of Economic Research, Inc.
4. Traeger, Christian P., 2008. "Sustainability, Limited Substitutability and Non-Constant Social Discount Rates," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt10d7d7n4, Department of Agricultural & Resource Economics, UC Berkeley.
   
   • Traeger, Christian P., 2011. "Sustainability, limited substitutability, and non-constant social discount rates," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 215-228, September.
   • Traeger, Christian P, 2007. "Sustainability, limited substitutability and non-constant social discount rates," CUDARE Working Paper Series 1045, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
5. Jeroen C.J.M. van den Bergh & Marjan W. Hofkes, 1997. "A Survey of Economic Modelling of Sustainable Development," Tinbergen Institute Discussion Papers 97-107/3, Tinbergen Institute.
6. Gerlagh, Reyer & van der Zwaan, B. C. C., 2002. "Long-Term Substitutability between Environmental and Man-Made Goods," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 329-345, September.
7. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
8. Dasgupta, Partha, 2001. "Human Well-Being and the Natural Environment," OUP Catalogue, Oxford University Press, number 9780199247882, September.
9. Philibert, Cedric, 1999. "The economics of climate change and the theory of discounting," Energy Policy, Elsevier, vol. 27(15), pages 913-927, December.
10. Ravi Bansal & Dana Kiku & Amir Yaron, 2010. "Long Run Risks, the Macroeconomy, and Asset Prices," American Economic Review, American Economic Association, vol. 100(2), pages 542-46, May.
11. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
    
    • Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
12. Fisher, Anthony C & Krutilla, John V & Cicchetti, Charles J, 1972. "The Economics of Environmental Preservation: A Theoretical and Empirical Analysis," American Economic Review, American Economic Association, vol. 62(4), pages 605-19, September.
13. Gollier, Christian, 2002. "Time Horizon and the Discount Rate," Journal of Economic Theory, Elsevier, vol. 107(2), pages 463-473, December.
14. 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.
15. Neumayer, Eric, 1999. "Global warming: discounting is not the issue, but substitutability is," Energy Policy, Elsevier, vol. 27(1), pages 33-43, January.
16. Annette Vissing-J�rgensen & Orazio P. Attanasio, 2003. "Stock-Market Participation, Intertemporal Substitution, and Risk-Aversion," American Economic Review, American Economic Association, vol. 93(2), pages 383-391, May.

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Citations

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Cited by:

1. Gollier, Christian, 2009. "Ecological Discounting," IDEI Working Papers 524, Institut d'Économie Industrielle (IDEI), Toulouse.
   
   • Gollier, Christian, 2010. "Ecological discounting," Journal of Economic Theory, Elsevier, vol. 145(2), pages 812-829, March.
   • Gollier, Christian, 2009. "Ecological Discounting," TSE Working Papers 09-062, Toulouse School of Economics (TSE).
   • GOLLIER Christian, 2008. "Ecological Discounting," LERNA Working Papers 08.18.262, LERNA, University of Toulouse.
2. Christian Gollier, 2013. "Asset Pricing with Uncertain Betas: A Long-Term Perspective," CESifo Working Paper Series 4072, CESifo Group Munich.
3. Kögel, Tomas, 2009. "On the Relation between Discounting of Climate Change and Edgeworth-Pareto Substitutability," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(27), pages 1-12.
   
   • Kögel, Tomas, 2011. "On the Relation between Discounting of Climate Change and Edgeworth-Pareto Substitutability," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(27 (Versi), pages 1-12.
4. Gollier, Christian, 2012. "Asset pricing with uncertain betas: A long-term perspective," IDEI Working Papers 752, Institut d'Économie Industrielle (IDEI), Toulouse.
   
   • Gollier, Christian, 2012. "Asset pricing with uncertain betas: A long-term perspective," TSE Working Papers 12-354, Toulouse School of Economics (TSE).
5. Éva Pálinkó & Márta Szabó, 2012. "Application of Social Discount Rate in Public Projects," Public Finance Quarterly, State Audit Office of Hungary, vol. 57(2), pages 184-199.
6. Kögel, Tomas, 2009. "On the Relation between Dual-Rate Discounting and Substitutability," Economics Discussion Papers 2009-10, Kiel Institute for the World Economy.
7. Karp, Larry, 2009. "Sacrifice, discounting and climate policy: five questions," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt1zq431s8, Department of Agricultural & Resource Economics, UC Berkeley.
   
   • Larry S. Karp, 2009. "Sacrifice, Discounting and Climate Policy: Five Questions," CESifo Working Paper Series 2761, CESifo Group Munich.
8. Traeger, Christian P., 2011. "Sustainability, limited substitutability, and non-constant social discount rates," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 215-228, September.
   
   • Traeger, Christian P, 2007. "Sustainability, limited substitutability and non-constant social discount rates," CUDARE Working Paper Series 1045, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
   • Traeger, Christian P., 2008. "Sustainability, Limited Substitutability and Non-Constant Social Discount Rates," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt10d7d7n4, Department of Agricultural & Resource Economics, UC Berkeley.

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