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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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IMPACT FACTOR 2016: 0.252
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CiteScore 2016: 0.48

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1935-1682
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Volume 12, Issue 1 (Apr 2012)

Issues

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

A New Look into the Determinants of the Ecological Discount Rate: Disentangling Social Preferences

Luciana Echazu
  • 1Clarkson University,
/ Diego Nocetti
  • 2Clarkson University,
/ William T. Smith
  • 3University of Memphis,
Published Online: 2012-04-23 | DOI: https://doi.org/10.1515/1935-1682.3102

Abstract

How should changes in environmental quality occurring in the future be discounted? To answer this question we consider a model of “ecological discounting”, where the representative consumer has a utility function defined over two attributes, consumption and environmental quality, which evolve stochastically over time. We characterize the determinants of the social discount rate and its behavior over time using a preference structure that disentangles attitudes towards intertemporal inequality, attitudes towards risk, and tastes over consumption and environmental quality. We show that the degree of substitutability between consumption and environmental quality, the degree of risk aversion, the degree of inequality aversion, and the rate at which these attitudes change as natural and man-made resources evolve over time are all important aspects of the ecological discount rate and its term structure. Our analysis suggests that over medium and long term horizons the ecological discount rate should be below the rate of time preference, supporting recent proposals for immediate action towards climate change mitigation.

Keywords: social discount rate; ecological discounting; uncertainty; multivariate risk aversion; intertemporal inequality; substitutability.

About the article

Published Online: 2012-04-23


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, DOI: https://doi.org/10.1515/1935-1682.3102.

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©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

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