IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Ecological discounting

  • Gollier, Christian

Which rates should we use to discount costs and benefits of different natures at different time horizons? We answer this question by considering a representative agent consuming two goods whose availability evolves over time in a stochastic way. We extend the Ramsey rule by taking into account the degree of substitutability between the two goods and of the uncertainty surrounding the economic and environmental growths. The rate at which environmental impacts should be discounted is in general different from the one at which monetary benefits should be discounted. We provide arguments in favor of an ecological discount rate smaller than the economic discount rate. In particular, we show that, under certainty and Cobb-Douglas preferences, the difference between the economic and the ecological discount rates equals the difference between the economic and the ecological growth rates. Using data about the link between biodiversity and economic development, I estimate that the rate at which changes in biodiversity should be discounted is 1.5%, whereas changes in consumption should be discounted at 3.2%.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6WJ3-4XDD0B5-1/2/d7fa0b0abfc2e19c2a821894835cca21
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 145 (2010)
Issue (Month): 2 (March)
Pages: 812-829

as
in new window

Handle: RePEc:eee:jetheo:v:145:y:2010:i:2:p:812-829
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Roger Guesnerie, 2004. "Calcul économique et développement durable," Revue économique, Presses de Sciences-Po, vol. 55(3), pages 363-382.
  2. Christian Gollier, 2005. "The Consumption-Based Determinants of the Term Structure of Discount Rates," CESifo Working Paper Series 1375, CESifo Group Munich.
  3. Traeger, Christian P., 2011. "Sustainability, limited substitutability, and non-constant social discount rates," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 215-228, September.
  4. Kocherlakota, N., 1995. "The Equity Premium: It's Still a Puzzle," Working Papers 95-05, University of Iowa, Department of Economics.
  5. Miles S. Kimball, 1991. "Standard Risk Aversion," NBER Technical Working Papers 0099, National Bureau of Economic Research, Inc.
  6. Louis Eeckhoudt & Béatrice Rey & Harris Schlesinger, 2007. "A Good Sign for Multivariate Risk Taking," Management Science, INFORMS, vol. 53(1), pages 117-124, January.
  7. EECKHOUDT, Louis & SCHLESINGER, Harris, . "Putting risk in its proper place," CORE Discussion Papers RP -1871, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. 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.
  10. Daniel L. Millimet & John A. List & Thanasis Stengos, 2003. "The Environmental Kuznets Curve: Real Progress or Misspecified Models?," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1038-1047, November.
  11. Gollier, Christian, 2002. "Time Horizon and the Discount Rate," Journal of Economic Theory, Elsevier, vol. 107(2), pages 463-473, December.
  12. Ekaterini Panopoulou & Ben Groom & Phoebe Koundouri & Theologos Pantelidis, 2004. "An Econometric Approach To Estimating Long-Run Discount Rates," Royal Economic Society Annual Conference 2004 70, Royal Economic Society.
  13. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  14. Martin L. Weitzman, 2007. "Subjective Expectations and Asset-Return Puzzles," American Economic Review, American Economic Association, vol. 97(4), pages 1102-1130, September.
  15. 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.
  16. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:145:y:2010:i:2:p:812-829. 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: (Zhang, Lei)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.