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Discounting the benefits and costs of environmental regulations

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Author Info

  • Jeffrey A. Kolb

    (Economist with Sobotka & Co., Inc.)

  • Joel D. Scheraga

    (Senior Economist with the U.S. Environmental Protection Agency and the National Acid Precipitation Assessment Program, Washington, DC)

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    Abstract

    This paper develops a two-stage procedure for discounting the benefits and costs of environmental regulations that is a variant of the shadow price of capital approach. Under this approach, the capital costs imposed by a regulation are annualized using the marginal rate of return on capital and then both benefits and costs are discounted using the social rate of time preference. This approach yields results that differ significantly from those of conventional discounting when benefits occur with a substantial lag or when benefits are long term.

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    File URL: http://hdl.handle.net/10.2307/3325282
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.

    Volume (Year): 9 (1990)
    Issue (Month): 3 ()
    Pages: 381-390

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    Handle: RePEc:wly:jpamgt:v:9:y:1990:i:3:p:381-390

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    Web page: http://www3.interscience.wiley.com/journal/34787/home

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    1. Bradford, David F, 1975. "Constraints on Government Investment Opportunities and the Choice of Discount Rate," American Economic Review, American Economic Association, vol. 65(5), pages 887-99, December.
    2. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242.
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    Cited by:
    1. Mark A. Moore & Anthony E. Boardman & Aidan R. Vining & David L. Weimer & David H. Greenberg, 2004. "“Just give me a number!” Practical values for the social discount rate," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(4), pages 789-812.
    2. Horowitz, John K., 1996. "Environmental policy under a non-market discount rate," Ecological Economics, Elsevier, vol. 16(1), pages 73-78, January.
    3. Thompson, Philip B, 1997. "Evaluating energy efficiency investments: accounting for risk in the discounting process," Energy Policy, Elsevier, vol. 25(12), pages 989-996, October.

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