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Ramsey discounting of ecosystem services

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Author Info

  • Stefan Baumgaertner

    ()
    (Leuphana University of Lueneburg, Germany)

  • Alexandra M. Klein

    (Leuphana University of Lueneburg and University of Freiburg, Germany)

  • Denise Thiel

    (Leuphana University of Lueneburg, Germany, and Lund University, Sweden)

  • Klara Winkler

    (Leuphana University of Lueneburg, Germany, and University of Life Sciences, Vienna, Austria)

Abstract

Most ecosystem services, which are essential for human well-being, are globally declining, while the production of consumption goods, measured by GDP, is still growing. To adequately account for this opposite development in public cost-benefit analyses, it has been proposed - based on a two-goods extension of the Ramsey growth model - to apply good-specific discount rates for manufactured consumption goods and for ecosystem services. Using empirical data for ten ecosystem services across five countries and the world at large, we estimated the difference between the discount rates for ecosystem services and for manufactured consumption goods. In a conservative estimate, we found that ecosystem services in all countries should be discounted at rates that are significantly lower than the ones for manufactured consumption goods. On global average, ecosystem services should be discounted at a rate that is 0.9+-0.3 percentage points lower than the one for manufactured consumption goods. The difference is larger in less developed countries and smaller in more developed countries. This result supports and substantiates the suggestion that public cost-benefit-analyses should use country-specific dual discount rates - one for manufactured consumption goods and one for ecosystem services.

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Bibliographic Info

Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 281.

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Length: 41 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:lue:wpaper:281

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Web page: http://leuphana.de/institute/ivwl.html

Related research

Keywords: discounting; ecosystem services; (de)growth; heterogeneous consumption; Ramsey model; substitution;

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Cited by:
  1. Wagner, Joachim, 2014. "Low-productive exporters are high-quality exporters. Evidence from Germany," Working Paper Series in Economics and Institutions of Innovation 341, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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