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An analysis of the long-term social discount rate and the valuation of large environmental losses using non-monetary tradeoffs

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  • Courard-Hauri, David
  • Klimas, Christie A.
  • Parrish, Conor

Abstract

We investigate individuals’ social discount rate and utility functions using a survey instrument that asks respondents to choose between saving a fraction of an ecosystem forever versus saving all of it for a limited time. This methodology is useful because it does not confound intertemporal choices with choices between very different types of goods, and so allows us to focus exclusively on how individuals discount, and how their marginal utility function changes in the face of non-marginal losses. We find respondents have much lower social discount rates than those that are generally used in analysis (0.22%; 95% range: 0.15-0.35%), and that respondents distinguish between marginal value and “retention value,” where the latter is the value of retaining at least a token functioning example of a system. The retention value ranges from 51% (95% range: 38-68%) of the total value for systems that represent a large, important example of an ecosystem, to 93% (85-99%) of the total value in the case of unique systems. These results suggest that economic valuation exercises based on estimates of marginal values are likely to significantly understate non-marginal losses from climate change and other types of environmental damage that threaten habitats and ecosystems.

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  • Courard-Hauri, David & Klimas, Christie A. & Parrish, Conor, 2020. "An analysis of the long-term social discount rate and the valuation of large environmental losses using non-monetary tradeoffs," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    • Handle: RePEc:eee:soceco:v:87:y:2020:i:c:s2214804319304951
    DOI: 10.1016/j.socec.2020.101549
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