Arbeitspapier
Non-Marginal Cost-Benefit Analysis and the Tyranny of Discounting
This paper uses the Kaldor-Hicks compensation principle to compute the present value (PV) of a non-marginal future event. Three theoretical results stand out: First, decreasing returns to capital create a wedge between the PV of future generations' willingness to pay (WTP) and the PV of their willingness to accept compensation (WTA); second, the discount rates implicit in the computation of the PVs are endogenous, and rising (declining) over time for the future generations' WTP (WTA); and third, decreasing returns to capital may make it impossible to compensate future generations according to their WTA, effectively defeating the tyranny of discounting. A back-of-the-envelope calibration suggests that this last result is realistic in the case of climate change. A cost-benefit analysis based on the Kaldor-Hicks compensation principle may therefore be impossible if futu re generations are entitled to a world without climate change; and an environmental trust fund - no matter how large it is - may be insufficient to adequately compensate future generations.
- Sprache
-
Englisch
- Erschienen in
-
Series: Tinbergen Institute Discussion Paper ; No. 13-203/VI
- Klassifikation
-
Wirtschaft
Allocative Efficiency; Cost-Benefit Analysis
General Aggregative Models: Neoclassical
Project Evaluation; Social Discount Rate
Valuation of Environmental Effects
Climate; Natural Disasters and Their Management; Global Warming
- Thema
-
climate change
cost-benefit analysis
discounting
WTP
WTA
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Vermeylen, Koen
- Ereignis
-
Veröffentlichung
- (wer)
-
Tinbergen Institute
- (wo)
-
Amsterdam and Rotterdam
- (wann)
-
2013
- Handle
- Letzte Aktualisierung
- 10.03.2025, 10:44 UTC
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Vermeylen, Koen
- Tinbergen Institute
Entstanden
- 2013
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