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Sustainability, Limited Substitutability and Non-Constant Social Discount Rates

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  • Traeger, Christian P.

Abstract

The paper explores the consequences of limited substitutability in welfare between environmental and produced goods for long-term evaluation. I show how the magnitude and time development of optimal social discount rates depend on the substitutability between the different classes of goods. The notions of weak and strong sustainability are translated into the degree of substitutability. I show that a strong notion of sustainability results in lower weights given to long-run service and consumption streams compared to a weak notion of sustainability.

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Bibliographic Info

Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt10d7d7n4.

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Date of creation: 01 Nov 2008
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Handle: RePEc:cdl:agrebk:qt10d7d7n4

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Related research

Keywords: environmental discount rate; hyperbolic; limited substitutability; non-constant discounting; numeraire dependence; project evaluation; propagator of marginal utility; social discount factor; social discount rate; strong sustainability; time preference; weak sustainability; Social and Behavioral Sciences; Life Sciences;

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  1. Dasgupta, Partha, 2001. "Human Well-Being and the Natural Environment," OUP Catalogue, Oxford University Press, number 9780199247882, September.
  2. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  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.
  4. 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.
  5. 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.
  6. Roger Guesnerie, 2004. "Calcul économique et développement durable," DELTA Working Papers 2004-02, DELTA (Ecole normale supérieure).
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. Gollier, Christian, 2002. "Time Horizon and the Discount Rate," Journal of Economic Theory, Elsevier, vol. 107(2), pages 463-473, December.
  13. 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.
  14. 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.
  15. Philibert, Cedric, 1999. "The economics of climate change and the theory of discounting," Energy Policy, Elsevier, vol. 27(15), pages 913-927, December.
  16. 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.
  17. Neumayer, Eric, 1999. "Global warming: discounting is not the issue, but substitutability is," Energy Policy, Elsevier, vol. 27(1), pages 33-43, January.
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