Chapter 5

How should we discount flows of benefits in order to more adequately take into account the interests of future generations?”

This contribution is another attempt at grappling with the vexing problem of discounting flows of net benefits from natural and environmental resources. It is an attempt at answering the question: how should we discount flows of benefits in order to more adequately take into account the interests of future generations with respect to their needs from natural and environmental resources.

In comparing the present values of policy alternatives, it is standard to discount net benefits that will accrue in the future compared to net benefits that can be achieved today (Heal, 1997) (Koopmans, 1960). Since cost–​benefit analysis (CBA) discounts streams of net benefits from a given project or policy alternative into a single number, namely, the net present value (NPV), discount rate assumptions used in these time stream comparisons can have a big impact on the apparent best policy or project (Nijkamp & Rouwendal, 1988) (Burton, 1993) (Fearnside, 2002). In particular, high discount rates favor myopic policies or projects that continue to exaggerate unsustainable resource use such as global overfishing (see for example, (Pauly et al., 2002) (Koopmans, 1974) (Clark, 1973).

Discounting as described above has attracted considerable attention from economists since Bo¨ hm- Bawerk (1889) (Böhm-​Bawerk, 1923) and Fisher (1930) (Fisher, 1930) invented intertemporal preferences. There are many arguments for and against standard discounting in the literature (see for example, (Baumol, 1952) (Sen, 1961) (Marglin, 1963) (Arrow et al., 1979) (Becker, 1980) (Nijkamp & Rouwendal, 1988) (Burton, 1993) (Goulder & Stavins, 2002) (Fearnside, 2002).

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