government deficits the real interest rate and ldc debt on global crowding out abstract the paper uses a three regions model of global saving investment balance to present a global crowding out interpretation of present economic trends the model builds on data which point to a possible shortage of savings explosive growth of social expenditures structural public sector deficit in north and south changes of the age pyramid real wage rigidity in many industrial countries

the causes of preference reversal observed preference reversal cannot be adequately explained by violations of independence the reduction axiom or transitivity the primary cause of preference reversal is the failure of procedure invariance especially the overpricing of low probability high payoff bets this result violates regret theory and generalized nonindependent utility models preference reversal and a new reversal involving time preferences are explained by scale compatibility which implies that payoffs are weighted more heavily in pricing than in choice copyright 1990 by american economic association

an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

are there environmental limits to cost benefit analysis this paper considers the problem areas found in applying cost benefit analysis cba to projects involving environmental costs or benefits this is particularly relevant given recent moves by the uk government to include environmental valuations in cba exercises and in other related appraisal activities following the publication of the pearce report the paper argues that a major problem lies in placing monetary values on non market goods the paper also addresses the problems of i differences between citizen and consumer values ii complexity of ecosystems iii irreversibility and uniqueness and iv intergenerational equity and discounting the extent to which cba is an institution open to capture is also discussed

ingredients of famine analysis availability and entitlements famines often take place in situations of moderate to good food availability without any significant decline of food supply per head the paper presents an alternative approach to famines which does not concentrate on availability but on people s ability to command food through legal means available in the society including the use of production possibilities trade opportunities entitlements vis a vis the state etc the approach is explained focusing on exchange entitlement mappings fluctuations in which can lead to big shifts in the intergroup distribution of food command the approach is then applied to the bengal famine of 1943 the ethiopian famine in wollo in 1973 and the bangladesh famine in 1974 and some general conclusions are drawn about the nature and classes of famines

the dynamic correlation and volatility of real estate price and rental an application of msv model this article investigates the dynamic conditional correlation between price and rental among four types of real estate markets namely housing retail office and factory in the case of hong kong from january 1993 to december 2008 the dynamic conditional correlation multivariate stochastic volatility dcc msv model and bayesian markov chain monte carlo mcmc are employed to capture the volatility and time varying correlation of property price and rental in each market the empirical results demonstrate that the volatilities of price are significantly larger than those of rental for each type of real estate markets throughout the whole sample period besides the findings indicate that the correlations between price and rental are time varying and the average correlation in the housing market is much larger than those in the other three markets also the conditional correlations in the factory market are the most volatile while those in the office market are relatively stable additionally two pa

towards a science of sustainability improving the way ecological economics understands human well being abstract ecological economics seeks to recognize what traditional economics often ignores that the economy is embedded in wider social and biophysical systems to date ecological economics has focused on the biophysical dimensions of these interactions yet achieving sustainable development will require difficult decisions regarding which environmental and other assets should be preserved and in what form this emphasizes the importance of understanding why particular environmental resources and services are important to human well being and how social and economic institutions may be structured to make the best use of these and other forms of capital the paper thus examines a variety of approaches to well being characterizing these as interpreting well being as a state of mind as a state of the world as human capability or as the satisfaction of underlying needs the literature surveyed is drawn largely from political philosophy and psychology and includes classical utilitarianism and self evaluative approaches descriptive utilitarianism and preference based approaches the basic needs approach functional approaches and underlying needs based and virtue based approaches particular authors include michalos scitovsky easterlin hirsch galbraith rawls sen maslow boyden and max neef the ideas examined are found to have significant implications for economic theory and policy especially regarding the social construction of preferences the treatment of distributional issues the identification of universal underlying needs and the relationship between the satisfaction of these needs and perceived well being these insights suggest that rising real incomes are unlikely to result in improved community well being calling into question the traditional economic view of progress they also offer a new path to sustainable development in which the primary focus is on the cultivation of appropriate institutions and attitudes rather than on the better management of resources the paper concludes that important aspects of social economic and environmental systems are codetermined and thus that achieving sustainable development will require an expansion of the scope of analysis to encompass a wider system dynamic the most promising approaches to well being in this context are those that identify universal underlying human needs thus avoiding the commodity fetishism of mainstream economics

greenhouse policy persuasion towards a positive theory of discounting the climate future abstract the climate policy issue is in a state where different visions or proposals compete with one another in the political arena the success of such a vision or proposal largely depends on the success of its proponents in persuading the public or a yet undecided ultimate authority of its merits this essay identifies a discounting related ambiguity in cost benefit analyses of climate change making two competing visions and proposals legitimate by placing the induced opportunity for greenhouse policy persuasion in a political economy context it is shown how visionaries and lobbyists can exploit human time preferences for the purpose of greenhouse policy persuasion

rates of time preference and valuations of the duration of life abstract this paper develops a multi period markov model of the lifetime choice of occupational fatality risks the empirical model analyzes the wage effects of job risks using the 1982 university of michigan panel study of income dynamics in conjunction with death statistics from the u s national traumatic occupational fatality survey evidence regarding workers intertemporal choices with respect to risks with long term implications is broadly consistent with rational behavior workers implicit real rate of time preference with respect to future life years equals approximately 11 percent this rate of time preference decreases with education

time preference the discounted utility model and health the constant rate discounted utility model is commonly used to represent intertemporal preferences in health care program evaluations this paper examines the appropriateness of this model and argues that the model fails both normatively and descriptively as a representation of individual intertemporal preferences for health outcomes variable rate discounted utility models are more flexible but still require restrictive assumptions and may lead to dynamically inconsistent behaviour the paper concludes by considering two ways of incorporating individual intertemporal preferences in health care program evaluations that allow for complementarity of health outcomes in different time periods

discounting in integrated assessments of climate change one of the key decisions that economists working on integrated studies of climate change face is the selection of the method of accounting for damages resulting from possible climate change across a long temporal scale and the method for the intertemporal comparison of the costs associated with possible greenhouse gas abatement strategies sensitivity tests show that the method applied and the resulting discount rate has a major impact on the optimal climate strategy the paper is intended to provide a short review of the various techniques that have been proposed and applied in various integrated models of climate change the underlying problem is as follows we can attempt to be consistent with the economic theory and empirical observations but in this case the derived discount rate will be on the order of 5 to 8 as a result even possibly significant damages from climate change turn out to be negligible when considered at their present value the artificially low discount rate based on ethical reasoning on the other hand makes our climate related decisions and resource allocations inconsistent with the majority of other public policy decisions

welfare analysis and intertemporal substitution abstract this paper explores the structure of welfare comparisons when direct utility is weakly separable over time the lifetime welfare effect of a reform is then the sum of atemporal hicksian variations and intertemporal variations reflecting intertemporal substitution these latter are shown to be of only second order importance in lifetime welfare comparisons approximations to the intertemporal variations when preferences are intertemporally additive are derived pointing to the welfare significance in this context of not only the intertemporal elasticity of substitution but also within period income effects numerical examples illustrate the analysis and suggest possible orders of magnitude

ten propositions in uk housing macroeconomics an overview of the 1980s and early 1990s during the last ten years macroeconomists have increasingly come to realise that there are important interactions between housing and the wider economy in some cases this realisation has come too late to avoid the severe oscillations in the economy that have characterised the period since the mid 1980s this paper uses a macroeconometric model specifically designed to capture the interactions in order to reflect on the experience of the 1980s and early 1990s and to draw theoretical empirical and policy conclusions in terms of ten propositions

ex ante valuation of atmospheric visibility in a world incomplete markets for environmental goods ex ante planned expenditures rather than ex post realized outcomes explain the values which individuals attach to these goods we use the distance function to develop restrictions from a model of ex ante consumer behaviour involving these goods a contigent valuation approach is then employed to estimate policy relavant components of the ex ante economic values that recreationists attach to differing subjective probabilities of alternative atmospheric visibility levels at a wilderness location and at an urban location in oregon marginal valuations of probability changes are similar at the two sites marginal rates of time preference for resolving uncertainities vary between 10 and 50 and are inversely related to education existence value averages 10 of total value and evidence is mixed that site specific value act as surrogates for general environmental preferences

managing cattle grazing under degraded forests an optimal control approach abstract in this paper aspects of knowledge generation and administration concerning management of a rural enterprise in the argentine chaco region are analyzed the deterioration of natural resources and human living conditions show that forest cattle interaction and the ecological economics of the system are poorly understood or not properly taken into account a methodological solution to a typical decision making problem is proposed here and illustrated by a worked example extracted from a real feasibility study the introduction provides a summary of the natural history and of the human interventions in the region arguments on the roke of silvopastoral systems in reverting forest and soil degradation into sustainable productive undertakings are also exposed the mathematical treatment of the problem follows a system theoretic approach a basic nonlinear model for the dynamics is designed first its simplest version includes three state variables livestock units forest biomass and forage availability and two manipulated variables percentage of female calves sold each year and percentage of the cows that did not give birth during the past period and went for sale states and controls are related by coupled differential difference equations selected results from simulation are shown foundations are also laid for taking into account impulsional controls selective and massive wood extractions forage implantation cattle additions and sales the objective function reflects sustainable development principles it evaluates the process in terms of usual economics and introduces ecological components of the management strategy the total cost is expressed as the accumulation of net expenses made for a fixed number of years minus the sale value of the firm at the end then a dynamic programming scheme is developed for finding optimal trajectories with respect to the basic setup shadow prices for the states are derived from the solution progress towards the building of a decision support system with the preceding elements is reported

booms and busts in the uk housing market the often volatile behaviour of uk house prices between 1957 and 1994 is analysed in an annual econometric model theory suggests that financial liberalisation of mortgage markets in the 1980s should have led to notable shifts in house price behaviour the evidence supports the predictions of theory suggesting shifts took place in wealth effects as in the consumption function and that real interest rates and income expectations became more important the presence of transactions costs suggests important nonlinearities in house price dynamics the paper also contains an explicit econometric treatment of expectations demography supply spillovers from the rented sector and of composition biases in the official house price index

discounting environmental health risks new evidence and policy implications abstract when environmental policy benefits accrue over a long time horizon the valuation problem becomes more complex some analysts support the use of financial market interest rates for discounting deferred health benefits while others argue against discounting altogether we address the discounting issue by estimating implicit discount rates for deferred health benefits exhibited by workers in their choice of job risk wage responses to variation in life years at risk provide direct estimates of the discount rate that workers apply to their future utility the estimated real discount rate equals approximately 2 consistent with financial market rates for the period

measuring progress in the degrowth transition to a steady state economy article i nfo in order to determine whether degrowth is occurring or how close national economies are to the concept of a steady state economy clear indicators are required within this paper i analyse four indicator approaches that could be used 1 gross domestic product 2 the index of sustainable economic welfare 3 biophysical and social indicators and 4 a composite indicator i conclude that separate biophysical and social indicators represent the best approach but a unifying conceptual framework is required to choose appropriate indicators and interpret the relationships between them i propose a framework based on ends and means and a set of biophysical and social indicators within this framework the biophysical indicators are derived from herman daly s definition of a steady state economy and measure the major stocks and flows in the economy environment system the social indicators are based on the stated goals of the degrowth

intergenerational transfers and the social discount rate this paper investigates the relationship between intergenerational asset transfers and the choice of the discount rate for use in cost benefit analysis in a model of a competitive overlapping generations economy constrained by a socially managed exhaustible resource provided that there are no distortions in capital markets and that all agents hold perfect foresight cost benefit techniques will result in a pareto efficient resource allocation if the discount rate is set equal to the market rate of interest but since the path of the interest rate depends on the level of intergenerational transfers cost benefit techniques do not ensure a socially desirable distribution of welfare between generations a social optimum will result only if intergenerational transfers are properly chosen and enforced decentralized private altruism may result in intergenerational transfers that both present and future individuals would agree are too small if members of the present generation attach positive weight to the general welfare of future generations not simply their personal descendants in a world where intergenerational transfers are non optimal second best policy making may imply a constrained optimum that is inefficient together these findings suggest that cost benefit analysis is at best a partial criterion to policy formulation that should be used only in conjunction with ethical principles that define the proper distribution of welfare between present and future generations

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

new evidence on financial crowding out this paper has provided evidence that federal government borrowing has in fact as least for the period 1970 through 1982 exercised a significant impact upon short term interest rates in the private sector in particular it is shown here that the rate of change of the interest yield on three month t bills exercises a positive and very highly significant impact upon the rate of change of the prime rate of interest to the extent that private sector spending is sensitive to the interest rate a very strong argument on behalf of financial crowding out can be made

the environment as a luxury good or too poor to be green abstract this paper discusses the views of different authors on the relations between economic growth and environmental scarcities it lays out the common assumptions behind inglehart s postmaterialist thesis in environmental sociology krutilla s criterion for the valuation of environmental amenities hirsch s notion of the positional economy and pearce s numerical results on weak sustainability the paper shows how different views on the environmental consequences of economic growth imply at the same time different theories about environmental movements in rich countries there is an increasing demand for environmental amenities which cannot be substituted by products of the material economy and there are also environmental movements against the effluents of affluence in poor countries there are environmental movements characterized as the environmentalism of the poor

cost benefit analysis and the european union cohesion fund on the social cost of capital and labour florio m 2006 cost benefit analysis and the european union cohesion fund on the social cost of capital and labour regional studies 40 211 224 cost benefit analysis is a formal regulatory requirement for the evaluation of cohesion fund projects it requires the calculation of shadow prices observed prices in less developed european union regions do not reflect the social opportunity cost of labour and capital because of market failures and policy constraints the paper discusses simple rules for the calculation of financial and economic discount rates and of shadow wages i e the opportunity costs of capital and labour in the context of the appraisal of infrastructure projects part financed under the cohesion fund it is argued that for the 2007 13 programming period the european commission should adopt a unique financial discount rate of 3 5 in real terms social discount rates of 5 5 for the convergence regions and 3 5 for competitiveness regions and a region specific shadow wage rate co

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

wilderness development decisions and the krutilla fisher model the case of scotland s flow country this paper reports some results from an empirical study of wilderness management in the flow country of northern scotland the flow country is an area of extensive blanket bog characterized by extensive populations of internationally rare breeding birds and by a very distinctive landscape the principle threat to the area at present comes from large scale afforestation this activity is subsidized by the state through the forestry commission and yet seems likely to create irreversible external cost flows the economic efficiency of continued planting in the area is tested for using the krutilla fisher model preservation benefits accruing to both users and non users are estimated using contingent valuation

overcoming accumulation is a capitalist steady state economy possible abstract this article critically reviews the case for a steady state zero growth economy posing the question whether such an economy can be stable and socially just given that in the current global economy lack of growth is synonymous with crisis the sse thesis is analysed within a framework of marxian political economy concluding that a stable and just sse is possible but not feasible within the social relations of capitalism using the marxian analysis of capital accumulation the article then considers whether the reforms proposed by ecological economists can form an effective countervailing force to the drive for accumulation the conclusion is that such reforms can be successful but only in so far as they are complemented and brought to their logical conclusion by a wider attempt to transcend the capitalist relations of production

dynamic inconsistency in valuing environmental goods abstract intertemporal tradeoffs continue to intrigue both academics and policy makers this paper explores patterns of dynamic inconsistency in valuing environmental goods we develop a model that predicts an individual will value extended access to an environmental good less than avoiding delayed access if time and money are complementary this value disparity results in a low marginal rate of time preference for avoiding delayed access and a high rate for acquiring extended access using the contingent valuation method we find behavior partially consistent with predictions marginal rates of time preference are highly situation and individual specific

frames of mind in intertemporal choice recent research has demonstrated that choices between gambles are systematically influenced by the way they are expressed kahneman and tversky s prospect theory kahneman d a tversky 1979 prospect theory an analysis of decision under risk econometrica472 363 391 explains many of these framing effects as shifts in the point of reference from which prospects are evaluated this paper demonstrates the applicability of the reference point concept to intertemporal choice three experiments demonstrate that when people choose between immediate and delayed consumption the reference point used to evaluate alternatives can significantly influence choice the first study elicited relative preference for immediate and delayed consumption using three methods each of which differently framed choices between alternatives offering identical end state consumption the conventional discounted utility model predicts that the three methods of elicitation should yield similar estimates of time preference but preferences were found to differ in accordance with a reference point model the second and third studies extend and replicate the results from the first the third using real rather than hypothetical choices

the impact of global warming on agriculture a ricardian analysis reply we measure the economic impact of climate on land prices using cross sectional data on climate farmland prices and other economic and geophysical data for almost 3 000 counties in the united states we find that higher temperatures in all seasons except autumn reduce average farm values while more precipitation outside of autumn increases farm values applying the model to a global warming scenario shows a significantly lower estimated impact of global warming on u s agriculture than the traditional production function approach and in one case suggests that even without co sub 2 fertilization global warming may have economic benefits for agriculture 16 refs 5 figs 5 tabs

empirical and public choice evidence for hyperbolic social discount rates and the implications for intergenerational discounting the derivation of the correct discount rate for intergenerational projects in cost benefit analysis is particularly contentious public choice has resulted in lower discretionary exponential discount rates for many intergenerational projects in britain and the usa this is shown to be strong indirect evidence that the true social discount rate may be a hyperbolic rather than an exponential function there is also empirical evidence for this hypothesis the hyperbolic nature of discounting is also a standard finding in the behavioural sciences for intergenerational time frames hyperbolic discount rates should be employed together with exponential discount rates in cost benefit sensitivity analyses

research frontiers in the economics of climate change academic and policy debates over climate change risks and policies have stimulated economic research in a variety of fields in this article i briefly discuss eight overlapping areas of current research in which further effort is particularly warranted these areas include decision criteria for policy risk assessment and adaptation uncertainty and learning abatement cost and the innovation and diffusion of technology and the credibility of policies and international agreements further analysis in these areas not only will advance academic understanding but also will provide insights of considerable importance to policymakers

using the fisherian concept of income to guide a nation s transition to a steady state economy abstract many ecological economists have long been advocating that industrialised nations should abandon their growth predilection and initiate the transition to a steady state economy to demonstrate how a nation s transition to a steady state economy might be usefully guided fisherian national income one of the best known indicators of sustainable economic welfare is calculated for australia for the period 1967 1997 also calculated for the study period is the changing physical scale of the australian economy by juxtaposing per capita fisherian income and the growth of the australian economy it is shown that australia surpassed its optimal macroeconomic scale in the mid 1970s while around this time australia began a transition to a lower rate of growth that arrested the steep decline in per capita fisherian income australia had reverted back to a high growth policy by the end of the study period it chose not to continue the deceleration towards a steady state economy a policy stance that is likely to be detrimental to the sustainable economic welfare enjoyed by the average australian

dynamic equilibrium of the housing market this paper derived within a general equilibrium framework demonstrates that housing price can be explicitly expressed as a combination of an exponential and linear function of housing rental this model provides an explanation as to why housing appreciation may not match inflation in the long run steady state we show that only under a very particular set of conditions will housing prices grow at a rate greater than the inflation rate evidence from the hong kong housing market supports the predictions of theory our model indicates that the housing market will be in the long run steady state when the rent value ratio is equal to the net discount rate

discount rates natural resources and the measurement of aggregate economic growth in africa abstract over the last decade there has been a growing interest in depreciation of natural capital in national income accounts within this literature there has been limited discussion of the sensitivity of measurement to the choice of discount rate and the effect of using depreciated measures of growth in empirical analyses without attempting to estimate or justify a specific discount rate this paper presents alternative sets of growth data for 18 african countries based on different assumptions of the appropriate discount rate to apply to natural capital the data sets are then used in a statistical test of the causes of economic growth results of the statistical analysis indicate sensitivity to the choice of discount rate

the behavioral life cycle hypothesis self control mental accounting and framing are incorporated in a behavioral enrichment of the life cycle theory of saving called the behavioral life cycle blc hypothesis the key assumption of the blc theory is that households treat components of their wealth as nonfungible even in the absence of credit rationing specifically wealth is assumed to be divided into three mental accounts current income current assets and future income the temptation to spend is assumed to be greatest for current income and least for future income considerable empirical support for the blc theory is presented primarily drawn from published econometric studies

the economics of climate change and the theory of discounting this paper confronts the theory of discounting with climate change economics standard discounting would give long term damages a very low present value on the other hand low discount rates would imply more sacrifices for present generations although future generations may be richer and using multiple rates would lead to economic inefficiencies the paper first shows that arguments favouring a low or zero discount rate in general are weak even from an ethical point of view it goes on by considering different arguments in favour of discount rates decreasing over time and by recalling the argument that non reproducible environmental assets should be given a value growing over time through the example of climate change it finally shows that the latter argument not only implies that the costs of damages associated to climate change should not be underestimated but also reinforce the legitimacy of using decreasing discount rates

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

reassessing the government s discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility abstract the paper reexamines the government s discount rate policy in the context of new evidence on international capital mobility the relationship between deficits and interest rates the relationship between consumer interest rates and the consumer s rate of time preference and intergenerational compensation it concludes that the approximate discount rate for government decisions will differ depending on the policy problem and that the government s borrowing rate is appropriate in some cases and in others the private rate should be used for long term policies the benefit cost rationale for discounting breaks down and must be reestablished on principles incorporating intergenerational equity

galtung meets daly a framework for addressing inequity in ecological economics abstract since world war ii economic growth has been the leading policy goal in efforts to eradicate poverty there is strong evidence that this strategy has gone hand in hand with increasing inequity and environmental degradation we need concepts that will help us understand the inadequacies of the current economic system we propose drawing from the ideas of sociologist johan galtung on social power structures and those of economist herman daly on the physical features of the economy a fusion of these perspectives creates a novel framework for analysis and a basis to formulate alternatives to the current growth strategy

discount rates and shadow prices for public investment abstract this paper extends the harberger sandmo dreze model for public discount rates to a many good economy it derives a formula for discount rates which are specific to each public enterprise or agency and used by them to discount future outputs and inputs evaluated at market prices such an approach is shown to be more efficient than that of simply using a single rate for all public projects it is also more practical than asking each public firm to use second best shadow prices in their analyses of investment projects the general results are first provided then simple cases are considered and numerical examples presented to help interpret our formula and analyse its main determinants

consumer s surplus and welfare change in a simple dynamic model la somme escomptee d equivalents instantanes ou les variations compensees n est jamais un indicateur du bien etre economique exact pour un consommateur dont les preferences sont representees par une fonction utilite inter temporelle croissant

willingness to pay and willingness to accept how much can they differ comment i agree with the point made by edoh y amiran and daniel a hagen 2003 that there can be a substantial or even infinite divergence between the wta and wtp for a public good even where there is a nonzero elasticity of substitution between market goods and the public good provided that the indifference curves are asymptotically bounded with respect to market goods in the manner they describe this is an important point they are also correct to point out that the elasticity of substitution is a local concept whereas their asymptotic boundedness condition applies also for discrete changes my 1991 paper used a local analysis because it was following the structure of the analysis in robert d willig 1976 and alan randall and john r stoll 1980 i wanted to show that while randall and stoll appeared to extend willig s local result on wta versus wtp from price changes to changes in the quantity of a public good the relevant elasticity was in fact different and involved the substitution elasticity as well as the income elasticity i view these points by amiran and hagen as not two separate results but essentially the same result their asymptotic boundedness condition generalizes my zero elasticity of substitution condition to discrete changes the asymptotic boundedness condition can be expressed as follows assuming a bivariate utility function u x q and given a reference point x q associated with a reference utility level u u x q there exists some q q such that for all q q there exists no x such that u x q u in other words no amount of x can substitute for the reduction in public good from q to q q in the case of a zero elasticity of substitution q q but as amiran and hagen show in their theorem 1 this is unnecessarily restrictive when dealing with a discrete reduction in q furthermore their theorem 2 can be viewed as a special case of their theorem 1 in which q 0 which makes q an essential commodity it is well known in consumer theory that the wta to avoid the loss of an essential market good is infinite their theorem 2 extends this result to the case of an essential nonmarket good but as their theorem 1 shows essentialness is not necessary for an infinite wta the boundedness condition is the key and this implies a fundamental lack of substitutability between money market goods and the public good

cross disciplinary evidence for hyperbolic social discount rates researchers in different disciplines have independently found evidence to suggest that the social discount rate may be hyperbolic rather than exponential in nature both behaviorist research and some empirical economics studies support the hyperbolic discounting hypothesis u s and u k government discounting dispensations for some long run public development projects are explicable in terms of an underlying hyperbolic social discount rate a statistical aggregation argument demonstrates that even if the behaviorist economics and public choice evidence for hyperbolic discounting is not conclusive the social discount rate of a set of people who individually express time preferences best modeled by exponential discounting functions is nonetheless hyperbolic further empirical economics studies of discounting preferences are required comparisons of different national discounting practices would also be useful to see how widespread is the use of unusually low exponential rates of discount for long run projects the application of hyperbolic discounting would have most impact in long run benefit cost analyses however government agencies would require overwhelming evidence before switching from exponential to hyperbolic discounting

money debt and deficits in a dynamic game this paper analyzes a dynamic linear quadratic game between the fiscal and monetary authorities the equilibrium outcome of the game determines the time path of money creation fiscal deficits and public debt the game is solved for different equilibrium concepts the equilibria are then compared and interpreted with reference to alternative institutional arrangements the main results are i coordination increases the speed of adjustment towards the steady state and takes the steady state value of public debt closer to the desired target ii precommitments take the non cooperative equilibrium closer to the coordinated outcome iii increasing the weight that each policymaker assigns to his own private objectives slows down the adjustment process places more burden on the opponent but has ambiguous effects on the steady state value of public debt

adaptation and the option value of uncertain environmental resources abstract just as ecology has benefited from the economic theory of optimization economics can benefit from the ecological theory of adaptation we examine the impact of short term non genetic adaptive self protection on the values individuals attach to uncertain prospective environmental resources we demonstrate that collective provision of reductions in supply uncertainty does not necessitate a positive option value given that uncertainty is influenced by the individual s ability to adapt through self protection we conclude that the total value of reducing the supply uncertainty of a natural resource is reflected in both the individual s option price payments for collective provision and in his willingness to pay for adaptation through self protection by ignoring adaptive self protection traditional benefit cost analysis has systematically underestimated the total value of environmental resources that are characterized by uncertain supplies

a flow of funds analysis of crowding out some international evidence in a pioneering article in this journal zahn 22 investigated the separate and combined influences of increase in government spending and government borrowing on the time path of income the investigation was undertaken within the framework of a small quarterly model of the u s economy consisting of both commodity and financial flow of funds sectors by explicitly using government borrowing zahn tested the crowding out hypothesis as one involving both government spending and borrowing effects on the flow of funds between commodity and financial markets the combination of both the expansionary influences of government spending and contractionary influences of government borrowing on the time path of income determine the extent of real crowding out zahn distinguishes between pure and partial multipliers the influence of an increase in government spending financed strictly by an increase in government borrowing is measured by the pure multipliers they are based on the assumption that increases in endogenous net taxes as a result of an expansionary fiscal policy are held in a treasury account and offset in the government budget constraint by equal decreases in the monetary base on the other hand the influence of an increase in government spending financed in part by endogenous net taxes and the remainder by government borrowing is measured by the partial multipliers the major results in zahn 22 may be summarized as follows the pure multipliers show that the greatest influence of an increase in government spending financed strictly by borrowing is registered during the first two quarters but afterwards crowding out occurs the partial multipliers show similar results but crowding out is substantially less because borrowing requirements are reduced lastly the cumulative multipliers indicate that a sustained increase in government spending financed either by borrowing or by both endogenous net taxes and borrowing increases income during the sample period but at a decreasing rate and after many years the influence falls to zero in other words crowding out occurs as a result of the negative sign of the government borrowing multipliers but it is not large enough to outweigh the expansionary influence of government spending except in the very long run when the steady state government spending multiplier approaches zero zahn s conclusions are in principle compatible with those found in most previous and

on what basis should health be discounted the discount rate to be applied in health care programmes should be based on the time preference rate for health and this same rate should be applied to costs as well due to the limited tradeability of health when eliciting its time preference rate the intertemporal choices must be framed in such a way as to resemble as closely as possible those facing health planners and decision makers

discount rates inferred from decisions an experimental study two hundred and four students of economics and finance participated in an intertemporal choice experiment which manipulated three dimensions in a 4 4 4 factorial design scenario postponing a receipt postponing a payment expediting a receipt expediting a payment time delay 0 5 1 2 and 4 years and size of cashflow 40 200 1000 and 5000 individual discount rates were inferred from the responses and then used to test competitively four hypotheses regarding the behavior of discount rates the classical hypothesis asserting that the discount rate is uniform across scenarios time delays and sums of cashflow was flatly rejected a market segmentation approach was found lacking the results support an implicit risk hypothesis according to which delayed consequences are associated with an implicit risk value and an added compensation hypothesis which asserts that individuals require compensation for a change in their financial position

low discount rates and insignificant environmental values abstract difference between the discount rate on consumption and the rate of return on investment is often taken to prevent the former s being used as a social discount rate yet techniques have long been known for incorporating both these rates in a shadow price of investment funds assumptions about the proportion of investment revenues saved and reinvested are crucial in determining whether a low discount rate favours or discriminates against long term environmental values even a moderate saving rate may make the shadow price of funds indefinitely large the conceptually correct discount rate then becomes the growth rate of investment funds and the relative value of environmental effects becomes zero stochastic variation in rate of return makes this result more likely such an outcome may be avoided by setting reinvestment to zero or assuming convergence of rates of return and discount but no firm justification exists for these stratagems however various reasonable assumptions about environmental costs especially that they embody an investment element or require adequate compensation to be paid may make such costs indefinite also and therefore capable of standing against indefinite values of investible funds

empirical measures of factors affecting social rates of discount economists have long considered possible divergences between private and social rates of time preferences in this paper we investigate factors hypothesized to affect this potential divergence results indicate that time preferences of individuals may be influenced by 1 whether the resource in question is publicly or privately managed respondents tend to have lower rates of time prefernce for publicly managed resources and 2 the type of good being managed respondents tend to have lower rates of time preference for income derived from a forest than for income derived from a portfolio of stocks and bonds additional factors which may influence the revealed rate of time preference include the pattern of benefits derived over time and various personal characteristics of the respondent although numerous methodological problems cloud the issues our results suggest that capital markets may fail to aggregate utility over individuals and between goods and that it may therefore be appropriate for governments to consider using lower rates of discount than the private sector and to vary the rate used according to the type of good being evaluated

implicit discount rates and the purchase of untried energy saving durable goods many consumers appear to rationally calculate the net worth of a household investment but a substantial minority may lack the skills or alertness to perceive an investment opportunity and initiate analysis intentions to engage in complementary activities play an important role in the investment decision

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

identifying individual discount rates and valuing public open space with stated preference models an individual s rate of time preference is an important consideration for individuals deciding whether to support a public good since the benefits of a public good often come in the future our study finds individual discount rates from a contingent valuation method cvm question where the time frame of the payment schedule is varied across surveys we find discount rates similar to the rates found in the recent revealed preference and experimental literature of around 30 our cvm question addresses the preservation of additional open space adjacent to a large regional park at the urban fringe of portland oregon

new evidence on deficits and interest rates it is generally assumed on theoretical grounds that increases in government borrowing cause interest rates to rise 1 but empirical support for this proposition has been weak at best several recent papers have uncovered no strong relationship between deficits and short terrn interest rates however the research reported here indicates that although the relationship between deficits and short terrn interest rates may be tenuous there is strong evidence that larger deficits are associated with higher long terrn interest rates much of the debate about whether there is a strong relationship between federal borrowing and interest rates concerns the crowding out question this controversy centers on the direct and indirect eilffects of government fiscal actions on private spending these effects have been well documented in the theoretical literature e g buiter 1977 carlson and spencer 1975 blinder and solow 1973 many of the crowding out effects studied in this literature depend on the connection between government borrowing and high interest rates friedman 1978 meyer 1975 silber 1970 this is called short run indirect crowding out and may occur when increases in government spending and borrowing cause interest rates to rise which then may cause private spending to be reduced buiter 1977 pp 310 13

intergenerational equity discounting and the role of cost benefit analysis in evaluating global climate policy when public policies with impacts far into the future are being debated the question inevitably is raised whether cost benefit analysis which discounts future costs and benefits is not biased against future generations and whether if such discounting is appropriate at all a lower rate should be used to avoid such bias the debate on global climate change is no exception this paper sketches and analyses the welfare foundations of cost benefit analysis and from this perspective analyses the role of cost benefit analysis in the climate policy debate particularly with reference to intergenerational effects the paper concludes that the cost benefit criterion cannot provide a definitive basis for deciding whether we should commit to a longer term programme to moderate climate change the issues of intergenerational equity are not that global climate change will significantly lower the gnp of future generations but relate to the possibility of science fiction like changes in the planet that will produce catastrophic effects in the future and the typical way in which the cost benefit problem is posed obscures the basic choices that we should be evaluating

sustainable development in a post brundtland world not yet two decades after the publication of our common future the world s political and environmental landscape has changed significantly nonetheless we argue that the concept and practice of sustainable development sd as guiding institutional principle as concrete policy goal and as focus of political struggle remains salient in confronting the multiple challenges of this new global order yet how sd is conceptualized and practiced hinges crucially on the willingness of scholars and practitioners to embrace a plurality of epistemological and normative perspectives on sustainability the multiple interpretations and practices associated with the evolving concept of development and efforts to open up a continuum of local to global public spaces to debate and enact a politics of sustainability embracing pluralism provides a way out of the ideological and epistemological straightjackets that deter more cohesive and politically effective interpretations of sd using pluralism as a starting point for the analysis and normative construction of sustainable development we pay particular attention to how an amalgam of ideas from recent work in ecological economics political ecology and the development as freedom literature might advance the sd debate beyond its post brundtland quagmire enhanced levels of ecological degradation vast inequalities in economic opportunities both within and across societies and a fractured set of institutional arrangements for global environmental governance all represent seemingly insurmountable obstacles to a move towards sustainability while these obstacles are significant we suggest how they might be overcome through a reinvigorated set of notions and practices associated with sustainable development one that explicitly examines the linkages between sustainability policies and sustainability politics

sensitivity of contingent valuation to alternative payment schedules insensitivity to payment schedule wherein respondents do not adequately differentiate between a one time payment and a series of payments may be an important but often overlooked factor in the design interpretation and use of contingent valuation studies several contingent valuation experiments involving a familiar private good and a less familiar environmental commodity indicate that although respondents distinguished between lump sum and periodic payment schedules implicit discount rates were very high suggesting that sensitivity to payment schedule is an important subject for further study

willingness to pay and compensation demanded experimental evidence of an unexpected disparity in measures of value aside from possible income effects measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent unexpectedly wide variations between these sums however have been noted in survey responses to hypothetical options this paper reports the results of a series of experiments that confronted people with actual money payments and cash compensations the results indicate that the compensation measure of value seems to exceed significantly the willingness to pay measure which would appear to call into some question various rules of entitlement damage assessments and interpretations of indifference curves

land use regulation in the lake george basin an ecological economic perspective abstract this paper examines land use policy in lake george new york in spite of a multitude of federal state and local regulations the environmental quality of lake george has deteriorated significantly in recent years we attribute this to a planning approach based implicitly on conventional economics this approach is characterized by marginal analysis exclusive reliance on discounted market values and an emphasis on economic growth we argue that an ecological economic approach explicitly recognizing the inherent conflict between economic activity and environmental protection is necessary to prevent further deterioration of the lake george environment we recommend a proactive planning approach clearly delineating the level of environmental integrity to be achieved and allowing this to be the governing factor in determining the permissible level of economic activity

the use of the discount rate in a cost benefit analysis for different uses of a humid tropical forest area abstract the linkage between ecology and economics can be made by describing our physical surroundings as a collection of possible uses these are called environmental functions as soon as the use of functions compete with each other the environment has an economic aspect the main conflict boils down to using environmental functions such as the functions of a tropical rain forest in an unsustainable way by maximizing production in the short run on the one hand and using functions sustainably in order to benefit from them in the long run on the other the intensity of preferences for the future availability of functions cannot be established from this it follows that the level of the discount rate when calculating long term environmental effects can also not be set using the market interest as the discount rate for calculating the present value of long term environmental costs and benefits means that the preferences for sustainable use of the environment amount to zero for in that case the present value of a dollar earned 100 years from now is practically nil this is a strong supposition the correctness of which cannot be proven unfortunately most cost benefit analyses such as those of the world bank and a recent study of the world resources institute repetto et al 1989 are based on this supposition

on fiscal deficits the real exchange rate and the world rate of interest we use a full general equilibrium two country two period model with perfect capital markets and intertemporal optimization and perfect foresight underlying private consumer behaviour in both countries to analyse effects of pure fiscal policy we demonstrate that higher government budget deficits in one country caused by a cut in commodity taxes today balanced by an equal present value increase tomorrow will not be offset one for one by higher private savings because of pure substitution effects triggered by the change in the intertemporal terms of trade the tax change causes the country with the increased government deficit will therefore run a larger current account deficit which in turn unambiguously leads to higher world real interest rates whether a real appreciation results in the country with the higher deficit is shown to depend on the metzler condition for an undereffected transfer if we spend more on our goods than they spend on our goods on the margin government deficits will lead to an appreciation of the exchange rate of the country with the government deficit and vice versa

choosing a government discount rate an alternative approach abstract this paper examines the choice of a government discount rate under the reasonable assumption that the level of government spending is determined in a top down fashion by macroeconomic and political considerations rather than in a bottom up fashion it is shown that setting the discount rate at the maximal internal rate of return available from unfunded government projects leads to an efficient portfolio choice under current and foreseeable conditions this implies a discount rate in the 10 or more real range rather than the 2 4 real discount rate recommended by second best theorists