Declining Discount Rates: The Long and the Short of it

Groom, Ben; Hepburn, Cameron; Koundouri, Phoebe; Pearce, David

doi:10.1007/s10640-005-4681-y

Cited by 161 publications

(117 citation statements)

References 78 publications

Supporting

Mentioning

112

Contrasting

Unclassified

Order By: Relevance

“…term effects might differ from that relevant to long term impacts (such as climate change) has caught hold in practical guidance (see HM Treasury, (2003) for example and for review, support and critique see Groom et al, (2005), Dietz and Hepburn (2010) and Dasgupta (2001) respectively).…”

Section: Discountingmentioning

confidence: 99%

Economic analysis for ecosystem service assessments

Bateman

Mace

Fezzi

et al. 2014

Valuing Ecosystem Services

135

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The paper seeks to contribute to the expanding literature on ecosystem service assessment by considering its integration with economic analyses of such services. Focussing upon analyses for future orientated policy and decision making, we initially consider a single period during which ecological stocks are maintained at sustainable levels. The flow of ecosystems services and their contribution to welfare bearing goods is considered and methods for valuing resultant benefits are reviewed and illustrated via a case study of land use change. We then broaden our time horizon to discuss the treatment of future costs and benefits. Finally we relax our sustainability assumption and consider economic approaches to the incorporation of depleting ecological assets with a particular focus upon stocks which exhibit thresholds below which restoration is compromised. Terms of use: Documents in

show abstract

Section: Discountingmentioning

confidence: 99%

Economic analysis for ecosystem service assessments

Bateman

Mace

Fezzi

et al. 2014

Valuing Ecosystem Services

135

View full text Add to dashboard Cite

show abstract

“…There are standard discount rates used by federal agencies, but an individual jurisdiction may choose its own discount rate, as appropriate to the project being assessed and consistent with its identified priorities. It should be noted that in some cases, especially with long-term decisions, a community may display declining discount rates and have time-variable preferences for social discounting (Groom et al, 2005).…”

Section: Select Discount Ratementioning

confidence: 99%

Community Resilience Economic Decision Guide for Buildings and Infrastructure Systems

Gilbert¹,

Butry²,

Helgeson³

et al. 2015

View full text Add to dashboard Cite

This Economic Guide provides a standard economic methodology for evaluating investment decisions aimed to improve the ability of communities to adapt to, withstand, and quickly recover from disruptive events. The Economic Guide is designed for use in conjunction with the NIST Community Resilience Planning Guide for Buildings and Infrastructure Systems, which provides a methodology for communities to develop long-term plans by engaging stakeholders, establishing performance goals for buildings and infrastructure systems, and developing an implementation strategy, by providing a mechanism to prioritize and determine the efficiency of resilience actions. The methodology described in this report frames the economic decision process by identifying and comparing the relevant present and future streams of costs and benefits-the latter realized through cost savings and damage loss avoidance-associated with new capital investment into resilience to those future streams generated by the status-quo. Topics related to non-market values and uncertainty are also explored. This report provides context for increasing resilience capacity through focusing on those investments that target key social goals and objectives, and providing selection criteria that ensure reduction of risks as well as increases in resilience. Furthermore, the methodological approach aims to enable the built environment to be utilized more efficiently in terms of loss reduction during recovery and to enable faster and more efficient recovery in the face of future disasters. KeywordsBenefit-cost analysis; buildings; communities; constructed facilities; resilience; economic analysis; economic decision tool; life-cycle costing; natural and man-made hazards; present expected value; resilience; risk assessment; vulnerability iii iv PrefaceSince 2002, the U.S. has endured seven of the 10 most costly disasters in its history, with Hurricane Katrina and Superstorm Sandy topping the list. There is a need for best practices for resilience planning that address the increasing value-at-risk of U.S. infrastructure and communities. Communities, as a system, are particularly vulnerable to the effects of natural and human-caused disruptive events. There are best practices for community resilience assessment methodologies; however, there are gaps that remain in characterization of robust, benefit-cost measures of community resilience, especially in the planning process. In many cases, resilience remains in a planning silo and is considered separately by communities from economic growth or disaster risk planning. Efforts to increase resilience capacities are best realized when resilience is considered as an attribute in general community planning efforts, especially in planning and implementing building and infrastructure projects.Despite significant progress in the application of science and technology to disaster reduction, communities are still challenged by disaster preparation, response, and recovery. Although the number of lives lost each year to natural and ...

show abstract

“…If hyperbolic discounting does provide an accurate description of the time preferences of humans and animals in some contexts, the policy implications are challenging. In particular, although hyperbolic discounting may place greater weight on the interests of future generations, there are problems with incorporating hyperbolic discounting of utility into social cost-benefit analysis (Pearce et al, 2003;Groom et al, 2005). Because hyperbolic discounting can explain a range of perplexing human behaviours, including drug addiction (Gruber & Koszegi, 2001), sub-optimally low savings rates (Laibson, 1997;Laibson et al, 1998;Harris & Laibson, 2001), procrastination (ODonoghue & Rabin, 1999a,b;Benabou & Tirole, 2004) and various others (Akerlof, 1991), this paper does not make the normative recommendation that hyperbolic preferences be incorporated into optimal policy making.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal harvesting of fish stocks under a time-varying discount rate

Duncan

Hepburn

Papachristodoulou

2011

Journal of Theoretical Biology

Self Cite

View full text Add to dashboard Cite

Optimal control theory has been extensively used to determine the optimal harvesting policy for renewable resources such as fish stocks. In such optimizations, it is common to maximise the discounted utility of harvesting over time, employing a constant time discount rate. However, evidence from human and animal behaviour suggests that we have evolved to employ discount rates which fall over time, often referred to as "hyperbolic discounting". This increases the weight on benefits in the distant future, which may appear to provide greater protection of resources for future generations, but also creates challenges of time-inconsistent plans. This paper examines harvesting plans when the discount rate declines over time. With a declining discount rate, the planner reduces stock levels in the early stages (when the discount rate is high) and intends to compensate by allowing the stock level to recover later (when the discount rate will be lower). Such a plan may be feasible and optimal, provided that the planner remains committed throughout. However, in practice there is a danger that such plans will be re-optimized and adjusted in the future. It is shown that repeatedly restarting the optimization can drive the stock level down to the point where the optimal policy is to harvest the stock to extinction. In short, a key contribution of this paper is to identify the surprising severity of the consequences flowing from incorporating a rather trivial, and widely prevalent, non-rational aspect of human behaviour into renewable resource management models. These ideas are related to the collapse of the Peruvian anchovy fishery in the 1970's.1

show abstract

Declining Discount Rates: The Long and the Short of it

Cited by 161 publications

References 78 publications

Economic analysis for ecosystem service assessments

Economic analysis for ecosystem service assessments

Community Resilience Economic Decision Guide for Buildings and Infrastructure Systems

Optimal harvesting of fish stocks under a time-varying discount rate

Contact Info

Product

Resources

About