Environmental Engineering Reference
In-Depth Information
determine the monetary value of the harm and how we
determine the discount rate. This is what the arguments
among the economists are all about.
Let
first at the discount rate. It is central to the
economic argument because as
Table
'
s look
shows, when
you are looking ahead for hundreds of years the present
values change enormously as the discount rate changes.
In the economic argument,
Table
.
.
is an over-
simpli
cation. The economists add together two rates to
get the total discount rate. One of them is what might be
called a wealth factor. How much richer are the people in
the future going to be? The US Bureau of Economic
Analysis indicates that from
to
, for example,
the economy grew after in
ation at an average rate of
%
per year, while the population grew by
.
% per year.
Take your choice on the wealth effect:
% per year for
the economy (
% richer for the total economy) or
]).
The other part is called the social discount rate and is a
much fuzzier concept. Some call it a measure of impa-
tience in that people value a dollar that they can spend
now more than a dollar that they will spend later, which is
in principle what a discount rate does. Other economists
call it a measure of intergenerational equity; a value of
zero says that later generations are as important to us
as our own, while a large value says they should fend
for themselves. In any event, Nordhaus says Stern uses
a social discount rate that is much too small,
.
% for per capita income (
% richer per person [
.
%.
This choice gives Stern
s analysis a total discount rate
that is much smaller than the historic rate. Stern says
that a low social discount rate is the only ethical thing
to do, and Nordhaus
'
'
value of
% is much too large.
