Ramsey Discounting of Ecosystem Services

38 Pages Posted: 2 Sep 2013 Last revised: 23 Apr 2014

See all articles by Stefan Baumgärtner

Stefan Baumgärtner

University of Freiburg - Department of Environment and Natural Resources

Alexandra-Maria Klein

Leuphana University - Institute for Ecology; University of Freiburg

Denise Thiel

Leuphana University of Lueneburg; Universität für Bodenkultur Wien (BOKU)

Klara Winkler

Leuphana University of Lueneburg; Lund University Centre for Sustainability Studies

Date Written: April 15, 2014

Abstract

Most ecosystem services, which are essential for human well-being, are globally declining, while the production of consumption goods, measured by GDP, is still growing. To adequately account for this opposite development in public cost-benefit analyses, it has been proposed – based on a two-goods extension of the Ramsey growth model – to apply good-specific discount rates for manufactured consumption goods and for ecosystem services. Using empirical data for ten ecosystem services across five countries and the world at large, we estimated the difference between the discount rates for ecosystem services and for manufactured consumption goods. In a conservative estimate, we found that ecosystem services in all countries should be discounted at rates that are significantly lower than the ones for manufactured consumption goods. On global average, ecosystem services should be discounted at a rate that is 0.9±0.3 %-points lower than the one for manufactured consumption goods. The difference is larger in less developed countries and smaller in more developed countries. This result supports and substantiates the suggestion that public cost-benefit-analyses should use country-specific dual discount rates – one for manufactured consumption goods and one for ecosystem services.

Keywords: discounting, ecosystem services, (de)growth, heterogeneous consumption, relative scarcities, Ramsey model, substitution

JEL Classification: H43, Q28, Q51, Q57

Suggested Citation

Baumgärtner, Stefan and Klein, Alexandra-Maria and Thiel, Denise and Winkler, Klara, Ramsey Discounting of Ecosystem Services (April 15, 2014). Environmental and Resource Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2315498 or http://dx.doi.org/10.2139/ssrn.2315498

Stefan Baumgärtner (Contact Author)

University of Freiburg - Department of Environment and Natural Resources ( email )

Tennebacher Str. 4
Freiburg, 79106
Germany

HOME PAGE: http://www.ere.uni-freiburg.de

Alexandra-Maria Klein

Leuphana University - Institute for Ecology ( email )

Scharnhorststrasse 1
Lüneburg, 21314
Germany

University of Freiburg

Fahnenbergplatz
Freiburg, D-79085
Germany

Denise Thiel

Leuphana University of Lueneburg ( email )

Scharnhorststraße 1
Lüneburg, 21335
Germany

Universität für Bodenkultur Wien (BOKU) ( email )

Feistmantelstrasse 4
Wien, 8010
Austria

Klara Winkler

Leuphana University of Lueneburg ( email )

Scharnhorststraße 1
Lüneburg, 21335
Germany

Lund University Centre for Sustainability Studies ( email )

Box 117
Lund, SC Skane S221 00
Sweden

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