Accounting For Environmental Awareness In Social Rate Of Time Preference Discount Rate Methodology

When evaluating governmental environmental programs, cost benefit analysis is extremely sensitive to the selection of discount rate. While controversy remains regarding the appropriate methodology for discount rate selection between the market-oriented approaches of social opportunity cost vs. the social rate of time preference, it is clear today that individuals and societies have changed their views and time preferences with regards to environmental risks and benefits. In light of this social rift in environmental awareness, the discount rate selection methodology must update its components that account for these preferences. The marginal utility of consumption, a key component of discount rate calculation, should be revised in the social rate of time preference methodology to include the effect of changes in future consumption elasticity in a state of deteriorating environmental conditions. Using stated choice experiments, we can estimate the effects of the changes in society's views and the resulting impact on discount rate selection.