Discounting Environmental Goods

Abstract

Understanding individual discounting behavior of future costs and benefits is critical for designing environmental policy. Although there is some empirical evidence of hyperbolic discounting, others have found that exponential discounting is more accurate when behavioral factors are properly considered. Further, there is little research on how environmental discount rates differ from monetary rates. We use experimental methods to determine how individuals discount monetary and environmental goods. Our findings suggest that individual discounting behavior is approximately exponential, environmental goods are discounted at lower rates than monetary goods, and discount rates vary widely across environmental goods when accounting for appropriate behavioral factors.

Keywords

• experimental analysis
• exponential discounting
• hyperbolic discounting