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Discounting, Uncertainty, and Revealed Time Preference

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  • Richard B. Howarth

Abstract

Recent studies suggest that direct preferences regarding investment gains and losses may significantly affect people’s behavior in financial markets. The present paper shows that this hypothesis has striking implications for the choice of discount rates in cost-benefit analysis. The paper explores a model in which the future benefits provided by a generic public good—environmental quality—should be discounted at a rate that is close to the market rate of return for risk-free financial assets. This holds true even when the public good has risk characteristics equivalent to those of risky forms of wealth such as corporate stocks.

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Bibliographic Info

Article provided by University of Wisconsin Press in its journal Land Economics.

Volume (Year): 85 (2009)
Issue (Month): 1 ()
Pages: 24-40

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Handle: RePEc:uwp:landec:v:85:y:2009:i:1:p:24-40

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Web page: http://le.uwpress.org/

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Cited by:
  1. Mehdi Farsi, 2008. "Risk-Aversion and Willingness to Pay for Energy Efficient Systems in Rental Apartments," CEPE Working paper series, CEPE Center for Energy Policy and Economics, ETH Zurich 08-55, CEPE Center for Energy Policy and Economics, ETH Zurich.
  2. Kovacs, Kent F. & Haight, Robert G. & Jung, Suhyun & Locke, Dexter H. & O'Neil-Dunne, Jarlath, 2013. "The marginal cost of carbon abatement from planting street trees in New York City," Ecological Economics, Elsevier, Elsevier, vol. 95(C), pages 1-10.
  3. Hahn, W. Andreas & Härtl, Fabian & Irland, Lloyd C. & Kohler, Christoph & Moshammer, Ralf & Knoke, Thomas, 2014. "Financially optimized management planning under risk aversion results in even-flow sustained timber yield," Forest Policy and Economics, Elsevier, Elsevier, vol. 42(C), pages 30-41.
  4. Kovacs, Kent F. & Haight, Robert G. & Mercader, Rodrigo J. & McCullough, Deborah G., 2014. "A bioeconomic analysis of an emerald ash borer invasion of an urban forest with multiple jurisdictions," Resource and Energy Economics, Elsevier, Elsevier, vol. 36(1), pages 270-289.
  5. Johansson-Stenman, Olof & Sterner, Thomas, 2013. "Discounting and Relative Consumption," Working Papers in Economics, University of Gothenburg, Department of Economics 559, University of Gothenburg, Department of Economics.
  6. Kovacs, Kent F. & Polasky, Stephen & Keeler, Bonnie & Pennington, Derric & Nelson, Erik & Plantinga, Andrew J. & Taff, Steven J., 2012. "Evaluating the Return in Ecosystem Services from Investment in Public Land Acquisitions," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington, Agricultural and Applied Economics Association 124660, Agricultural and Applied Economics Association.
  7. Zhou, Mo & Buongiorno, Joseph, 2011. "Effects of stochastic interest rates in decision making under risk: A Markov decision process model for forest management," Forest Policy and Economics, Elsevier, Elsevier, vol. 13(5), pages 402-410, June.
  8. Kovacs, Kent F. & Haight, Robert G. & McCullough, Deborah G. & Mercader, Rodrigo J. & Siegert, Nathan W. & Liebhold, Andrew M., 2010. "Cost of potential emerald ash borer damage in U.S. communities, 2009-2019," Ecological Economics, Elsevier, Elsevier, vol. 69(3), pages 569-578, January.
  9. Gerst, Michael D. & Howarth, Richard B. & Borsuk, Mark E., 2010. "Accounting for the risk of extreme outcomes in an integrated assessment of climate change," Energy Policy, Elsevier, Elsevier, vol. 38(8), pages 4540-4548, August.

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