Non-Uniform Social Rates of Discount in Natural Resource Models: An Overview of Arguments and Consequences

Daniel Gijsbers
Peter Nijkamp

DOI: 10.2190/J4PN-RC3D-0RAD-BHPH


One of the crucial factors in resource economics is the element of time. In recent years a great many dynamic models have been developed in order to derive optimal decision rules for long-term resource policies. The assessment of the long-term socio-economic net benefits of resource use is however fraught with difficulties due to many uncertainties in models with a long time horizon (e.g., risk, multigenerational tradeoff). In order to take account of the uncertain or hidden effects of a project in a dynamic ecological-economic model one can either try to adjust the costs and benefits of the project at hand or the social rate of discount that is used in the model concerned. In this article the latter approach is adopted in four representative natural resource models pertaining to the environment, the fisheries sector, the forestry sector, and exhaustible resources, respectively. The effects that are internalized in each model relate to the following classes of uncertainty: multiple generations, risk and uncertainty, crowding out effects, and externalities (and intangible effects) of the use of the natural resource. A sensitivity analysis on the implications of a non-uniform social rate of discount is undertaken for these four classes of uncertainties with respect to each of the four models used.

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