IDEAS home Printed from
   My bibliography  Save this article

Low discount rates and insignificant environmental values


  • Price, Colin


Difference between the discount rate on consumption and the rate of return on investment is often taken to prevent the former's being used as a social discount rate. Yet techniques have long been known for incorporating both these rates in a shadow price of investment funds. Assumptions about the proportion of investment revenues saved and reinvested are crucial in determining whether a low discount rate favours or discriminates against long-term environmental values. Even a moderate saving rate may make the shadow price of funds indefinitely large. The conceptually correct discount rate then becomes the growth rate of investment funds, and the relative value of environmental effects becomes zero. Stochastic variation in rate of return makes this result more likely. Such an outcome may be avoided by setting reinvestment to zero, or assuming convergence of rates of return and discount, but no firm justification exists for these stratagems. However, various reasonable assumptions about environmental costs - especially, that they embody an investment element, or require adequate compensation to be paid - may make such costs indefinite also, and therefore capable of standing against indefinite values of investible funds.

Suggested Citation

  • Price, Colin, 2010. "Low discount rates and insignificant environmental values," Ecological Economics, Elsevier, vol. 69(10), pages 1895-1903, August.
  • Handle: RePEc:eee:ecolec:v:69:y:2010:i:10:p:1895-1903

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Nichols, Alan, 1969. "On the Social Rate of Discount: Comment," American Economic Review, American Economic Association, vol. 59(5), pages 909-911, December.
    2. Sandmo, Agnar & Dreze, Jacques H, 1971. "Discount Rates for Public Investment in Closed and Open Economies," Economica, London School of Economics and Political Science, vol. 38(152), pages 395-412, November.
    3. Sjaastad, Larry A & Wisecarver, Daniel L, 1977. "The Social Cost of Public Finance," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 513-547, June.
    4. Padilla, Emilio, 2002. "Intergenerational equity and sustainability," Ecological Economics, Elsevier, vol. 41(1), pages 69-83, April.
    5. Sumaila, Ussif R. & Walters, Carl, 2005. "Intergenerational discounting: a new intuitive approach," Ecological Economics, Elsevier, vol. 52(2), pages 135-142, January.
    6. C. C. von Weizsäcker, 1967. "Lemmas for a Theory of Approximate Optimal Growth," Review of Economic Studies, Oxford University Press, vol. 34(1), pages 143-151.
    7. Lind, Robert C., 1990. "Reassessing the government's discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 8-28, March.
    8. Harry F. Campbell, 1981. "Shadow-Prices for the Economic Appraisal of Public Sector Expenditures," Canadian Public Policy, University of Toronto Press, vol. 7(3), pages 395-398, Summer.
    9. Nichols, Alan, 1971. "Normalisation Procedure for Public Investment Criteria: Further Comment," Economic Journal, Royal Economic Society, vol. 81(321), pages 122-125, March.
    10. Rabl, Ari, 1996. "Discounting of long-term costs: What would future generations prefer us to do?," Ecological Economics, Elsevier, vol. 17(3), pages 137-145, June.
    11. Stefan Bayer, 2003. "Generation-adjusted discounting in long-term decision-making," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 6(1), pages 1133-1149.
    12. C. Price, 1991. "Do High Discount Rates Destroy Tropical Forests," Journal of Agricultural Economics, Wiley Blackwell, vol. 42(1), pages 77-85.
    13. Lyon, Randolph M., 1990. "Federal discount rate policy, the shadow price of capital, and challenges for reforms," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 29-50, March.
    14. Colin Price, 2003. "Diminishing marginal utility: the respectable case for discounting?," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 6(1), pages 117-132.
    15. Anthony C. Fisher & John V. Krutilla, 1975. "Resource Conservation, Environmental Preservation, and the Rate of Discount," The Quarterly Journal of Economics, Oxford University Press, vol. 89(3), pages 358-370.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Colin, Price, 2011. "Optimal rotation with declining discount rate," Journal of Forest Economics, Elsevier, vol. 17(3), pages 307-318, August.
    2. AlekneviÄ ienÄ—, Vilija & StonÄ iuvienÄ—, Neringa & ZinkeviÄ ienÄ—, DanutÄ—, 2013. "Determination of the fair value of a multifunctional family farm: a case study," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 115(3), December.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:69:y:2010:i:10:p:1895-1903. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.