Discounting Environmental Effects in Project Appraisal
Date
01.01.2002
01.01.2002
Authors
Marco Percoco
JEL Code
Q01,D61,H5
Q01,D61,H5
Keywords:
Environmental effects,project appraisal,social discounting
Environmental effects,project appraisal,social discounting
Publisher
Climate Change and Sustainable Development
Climate Change and Sustainable Development
Editor
Carlo Carraro
Carlo Carraro
The aim of this paper is to present an alternative methodology for discounting far distant future externalities genereted by an investment project: time-declining discount rates. First I present the experimental evidence on individuals’ time-inconsistency. Second I consider the theoretical justification for using hyperbolic discounting in a simple uncertainty framework where marginal social utility is discounted hyperbolically if the investing Government believes that social wealth might increase or decrease over future period with a small probability that wealth will deteriorate below its current level.