Putting a price on the future of our children and grandchildren

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Discounting has the dubious distinction of being the most controversial issue in social cost-benefit analysis. This is largely because choosing the discount rate will often dominate other choices a modeler makes. For example, consider how we might estimate future damages from greenhouse gas emissions.

In spite of the multiple layers of uncertainty surrounding natural science issues, most of the controversy over Stern’s The Economics of Climate Change concerned one number: the discount rate.

Climate Change

The impact of shadow prices and farmers' impatience on the allocation of a multipurpose renewable resource in Ethiopia

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EfD Authors:

In a mixed farming system in which farmyard manure (FYM) is considered an important multipurpose renewable resource that can be used to enhance soil organic matter, provide additional income and supply household energy, soil fertility depletion could take place within the perspective of the household allocation pattern of FYM. This paper estimates a system of FYM allocation regressions to examine the role of returns to FYM and farmers’ impatience on the propensity to allocate FYM to different uses.

Agriculture

In defence of sensible economics

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How can economics best contribute to the scientific and public debates? Professor Thomas Sterner, University of Gothenburg, together with Nicholas Stern, who wrote the The Stern Review, and Nobel laureates Thomas Schelling and Robert Solow are among the scholars who explain in this book both how economics has changed environmental understanding and how the study of climate change has modified the economy.

 

Climate Change, Policy Design

Changes in discount rates over time: Evidence from Ethiopia

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Numerous experimental studies have lent credence to the hyperbolic discounting model, which posits that individuals are impatient about immediate or near-term consumption decisions, but are relatively more patient over future consumption.

Experiments

An even Sterner Review, Introducing Relative Prices into the Discounting Debate

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The Stern Review (2006) has come to symbolize something of a dividing line in the evolution of the common appreciation of the climate problem. It is fair to say that during the last decade there has been a gradual but uneven increase in the perceived gravity of anthropogenic climate change, both among scientists and, with some time lag, the general public.

Climate Change

Comments on Simon Dietz and Nicholas Stern's Why Economic Analysis Supports Strong Action on Climate Change: A Response to the Stern Review's Critics

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When the Stern Review challenged the conventional wisdom and called for strong and immediate action on climate change, reactions were initially fierce. However, the ensuing debate has shown a new consensus in the making.

This article contains three contributions to this discussion posted by: Robert Mendelsohn, Thomas Sterner and U. Martin Persson, and John P. Weyant.

Climate Change

Wealth and Time Preference in Rural Ethiopia

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This study measured the discount rates of 262 farm households in the Ethiopian highlands, using a time preference experiment with real payoffs. In general, the median discount rate was very high and varied systematically with wealth and risk aversion. Our findings, however, warn that rates-of-time preferences (RTPs) and risk aversion reinforce each other and are easily confused. Because the RTPs were so high, what seem like profitable investments from the outside might not seem so from the farmers’ perspectives.

 

Experiments

Do Discount Rates Change over Time? Experimental Evidence from Ethiopia

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This artefactual experiment in Ethiopia tested the hyperbolic discounting hypothesis by comparing time discounting over cash and consumption goods, using real payoffs. It found no difference in elicited time preferences between cash and consumption goods (tradable or final), which could be the result of missing markets in rural Ethiopia, and there was some evidence of time-inconsistent preferences.

 

Experiments

Discounting and relative prices

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Environmentalists are often upset at the effect of discounting costs of future environmental damage, e.g., due to climate change. An often-overlooked message is that we should discount costs but also take into account the increase in the relative price of the ecosystem service endangered.

Climate Change

An even Sterner Review, Introducing Relative Prices into the Discounting Debate

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The Stern Review (2006) has come to symbolize something of a dividing line in the evolution of the common appreciation of the climate problem. It is fair to say that during the last decade there has been a gradual but uneven increase in the perceived gravity of anthropogenic climate change, both among scientists and, with some time lag, the general public.

Climate Change