Sustainability and Intergenerational Equity with Varying Discount Rate: The Case of Renewable Resource
10 Pages Posted: 9 Jan 2012
Date Written: December 30, 2011
Abstract
The relationship between natural resource exploitation and the discount rate in economic theory is well documented. The discount rate is deemed to influence resource utilization such that a higher discount rate will speed up natural resource exploitation in market oriented economy and a lowering rate will act otherwise. This fact is proven mathematically and is known as the Hotlling lemma. Basically an optimal utilization of renewable natural resource is attained when its growth rate per time is equated to the existing discount rate. The current study attempts to establish the fact that discount rate which is used as the discounting factor in dynamic optimization is technically useful for the attainment of production sustainability of a renewable resource. However, it has a far reaching economic and environmental implication in terms of resource distribution pertaining to the equity issue between the present and future generation. The finding seems to suggest that higher discount rate would favor greater exploitation of resource, thus raises the issue of resource sustainability in long run. Using panel data from forestry resource the linear fixed and random effect demand functions were estimated. A simplified dynamic optimization technique was then applied with the objective to investigate the impact of varying discount rate on the renewable forestry resource and thus the distribution of natural resource in the light of intergenerational equity distributional issue. The mathematical objective of intertemporal optimization equity issue is to maximize the net social benefit between the economic and environmental benefits and costs. Environmental degradation which tends to increase following intensity of resource exploitation was observed.
Keywords: discount rate, natural resource use, intergenerational justice, intertemporal optimization and sustainability
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Consumption-Based Determinants of the Term Structure of Discount Rates
-
How Should the Distant Future Be Discounted When Discount Rates are Uncertain?
By Christian Gollier and Martin Weitzman
-
Discounting the Long-Distant Future: A Simple Explanation for the Weitzman-Gollier-Puzzle
By Wolfgang Buchholz and Jan Schumacher
-
Should We Discount the Far-Distant Future at its Lowest Possible Rate?
-
Should We Discount the Far-Distant Future at its Lowest Possible Rate?
-
Expected Net Present Value, Expected Net Future Value, and the Ramsey Rule
-
Social Discounting Under Uncertainty: A Cross-Country Comparison
By Cameron J. Hepburn, Phoebe Koundouri, ...
-
Social Discounting Under Uncertainty: A Cross-Country Comparison
By Cameron J. Hepburn, Phoebe Koundouri, ...