Discounting Environmental Effects in Project Appraisal
23 Pages Posted: 21 Oct 2002
Date Written: September 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.
Keywords: Environmental Effects, Project Appraisal, Social Discounting
JEL Classification: Q01, D61, H5
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