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  • J.K. Horowitz

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Abstract

Environmental economics has been much occupied with “the discount rate,” which is the value of future costs and benefits relative to present costsor benefits. But at least as important is the question of whatshould be discounted, that is, what the value of those future environmentalbenefits is to future generations. This paper analyzes the role for futurepreferences and discusses the state of knowledge. I argue that theappropriate discount rate is the market one, and that the real problemis determining future willingness-to-pay. This approach makes clearerthe connection between discounting and the valuation debate. This paper focuses on two features that have been prominent in that debate:existence value and reference dependence. I argue that thereis a vital connection between the two constructs and that this link yieldsimportant implications for future willingness-to-pay. Copyright Kluwer Academic Publishers 2002

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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 21 (2002)
Issue (Month): 3 (March)
Pages: 241-258

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Handle: RePEc:kap:enreec:v:21:y:2002:i:3:p:241-258

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: discount rate; environmental valuation; existence value; future preferences; paternalistic altruism; reference dependence;

References

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  1. David F. Bradford, 1997. "On the Uses of Benefit-Cost Reasoning in Choosing Policy Toward Global Climate Change," NBER Working Papers 5920, National Bureau of Economic Research, Inc.
  2. George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2001. "Projection Bias in Predicting Future Utility," General Economics and Teaching 0012003, EconWPA.
  3. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  5. Laitner, J. & Ohlsson, H., 1998. "Bequest Motives: a Comparison of Sweden and the United States," Papers 1998:16, Uppsala - Working Paper Series.
  6. Kopp, Raymond & Portney, Paul, 1997. "Mock Referenda for Intergenerational Decisionmaking," Discussion Papers dp-97-48, Resources For the Future.
  7. Bowman, David & Minehart, Deborah & Rabin, Matthew, 1999. "Loss aversion in a consumption-savings model," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 155-178, February.
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  9. Rollins, Kimberly & Lyke, Audrey, 1998. "The Case for Diminishing Marginal Existence Values," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 324-344, November.
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  15. McConnell, K. E., 1997. "Does Altruism Undermine Existence Value?," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 22-37, January.
  16. Flores, Nicholas E. & Carson, Richard T., 1997. "The Relationship between the Income Elasticities of Demand and Willingness to Pay," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 287-295, July.
  17. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
  18. Schelling, Thomas C, 1992. "Some Economics of Global Warming," American Economic Review, American Economic Association, vol. 82(1), pages 1-14, March.
  19. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 55-79, February.
  20. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
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  22. Jousten, Alain, 2001. "Life-cycle modeling of bequests and their impact on annuity valuation," Journal of Public Economics, Elsevier, vol. 79(1), pages 149-177, January.
  23. Horowitz, John K. & McConnell, K. E., 2003. "Willingness to accept, willingness to pay and the income effect," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 537-545, August.
  24. Cropper, Maureen & Laibson, David, 1998. "The implications of hyperbolic discounting for project evaluation," Policy Research Working Paper Series 1943, The World Bank.
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Citations

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Cited by:
  1. 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.
  2. Yohe, Gary W. & Tol, Richard S. J. & Anthoff, David, 2009. "Discounting for Climate Change," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(24), pages 1-22.
  3. Anthoff, David, 2009. "Optimal Global Dynamic Carbon Taxation," Papers WP278, Economic and Social Research Institute (ESRI).
  4. Tol, Richard S. J., 2004. "On dual-rate discounting," Economic Modelling, Elsevier, vol. 21(1), pages 95-98, January.
  5. David Anthoff & Richard Tol, 2009. "The Impact of Climate Change on the Balanced Growth Equivalent: An Application of FUND," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(3), pages 351-367, July.
  6. Richard Tol, 2012. "On the Uncertainty About the Total Economic Impact of Climate Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 53(1), pages 97-116, September.
  7. Ben Groom & Cameron Hepburn & Phoebe Koundouri & David Pearce, . "Implications of declining discount rates: Climate Change Policy in the UK," DEOS Working Papers 0702, Athens University of Economics and Business.
  8. Marc D. Davidson, 2012. "Intergenerational Justice: How Reasonable Man Discounts Climate Damage," Sustainability, MDPI, Open Access Journal, vol. 4(1), pages 106-122, January.
  9. Kirill Borissov & Kirill Shakhnov, 2011. "Sustainable growth in a model with dual-rate discounting," EUSP Deparment of Economics Working Paper Series Ec-04/11, European University at St. Petersburg, Department of Economics, revised 10 Mar 2011.
  10. Veisten, Knut, 2007. "Contingent valuation controversies: Philosophic debates about economic theory," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(2), pages 204-232, April.
  11. Kögel, Tomas, 2009. "On the Relation between Dual-Rate Discounting and Substitutability," Economics Discussion Papers 2009-10, Kiel Institute for the World Economy.
  12. Anthoff, David & Tol, Richard S. J., 2011. "Schelling's Conjecture on Climate and Development: A Test," Papers WP390, Economic and Social Research Institute (ESRI).
  13. Phoebe Koundouri & Ben Groom, . "Sustainability and the Economics of the Environment: Cost-Benefit Analysis and the Dynamics of the Long-Run Discount Rate," DEOS Working Papers 0903, Athens University of Economics and Business.
  14. 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.

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