Paper of the Month: The Discount Rate in Environmental Cost-Benefit Analysis

The Discount Rate in Environmental Cost-benefit Analysis (p.39)

by A Heesterman

Abstract: Environmental cost-benefit analysis compares an assessment the benefit of the abatement or containment of a particular form of environmental damage with the cost of the measures needed to attain that abatement or containment. It is in that context, as with other applications of cost-benefit analysis, usual to apply a discount rate. A number of relatively recent textbooks in environmental economics suggest that general economic theory provides a clear and well-established benchmark as to what this discount rate should be: some kind of ‘average’ of the market rate of interest. There are questions about that assertion in general. Our focus in this paper relates to a more specific problem: the relative scarcity of environmental resources in comparison to produced goods. A specific framework of analysis is offered in that context.

Economic Issues, Volume 9, Part 1.

Full text pdf available at: http://www.economicissues.org.uk/Vol9.html#a4

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