Discounting Environmental Effects in Project Appraisal
Bocconi University - Department of Policy Analysis and Public Management
FEEM Working Paper No. 71.2002
The aim of this paper is to present an alternative methodology for discounting far distant future externalities generated 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.
Number of Pages in PDF File: 23
Keywords: Environmental Effects, Project Appraisal, Social Discounting
JEL Classification: Q01, D61, H5
Date posted: October 21, 2002