Discounting Environmental Effects in Project Appraisal

23 Pages Posted: 21 Oct 2002  

Marco Percoco

Bocconi University - Department of Policy Analysis and Public Management

Date Written: September 2002

Abstract

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.

Keywords: Environmental Effects, Project Appraisal, Social Discounting

JEL Classification: Q01, D61, H5

Suggested Citation

Percoco, Marco, Discounting Environmental Effects in Project Appraisal (September 2002). FEEM Working Paper No. 71.2002. Available at SSRN: https://ssrn.com/abstract=334984 or http://dx.doi.org/10.2139/ssrn.334984

Marco Percoco (Contact Author)

Bocconi University - Department of Policy Analysis and Public Management ( email )

Via Roentgen 1
Milan, 20136
Italy

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