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Discounting the benefits and costs of environmental regulations

Author

Listed:
  • Jeffrey A. Kolb

    (Economist with Sobotka & Co., Inc.)

  • Joel D. Scheraga

    (Senior Economist with the U.S. Environmental Protection Agency and the National Acid Precipitation Assessment Program, Washington, DC)

Abstract

This paper develops a two-stage procedure for discounting the benefits and costs of environmental regulations that is a variant of the shadow price of capital approach. Under this approach, the capital costs imposed by a regulation are annualized using the marginal rate of return on capital and then both benefits and costs are discounted using the social rate of time preference. This approach yields results that differ significantly from those of conventional discounting when benefits occur with a substantial lag or when benefits are long term.

Suggested Citation

  • Jeffrey A. Kolb & Joel D. Scheraga, 1990. "Discounting the benefits and costs of environmental regulations," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 9(3), pages 381-390.
    • Handle: RePEc:wly:jpamgt:v:9:y:1990:i:3:p:381-390
    DOI: 10.2307/3325282
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    References listed on IDEAS

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    1. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242, September.
    2. Bradford, David F, 1975. "Constraints on Government Investment Opportunities and the Choice of Discount Rate," American Economic Review, American Economic Association, vol. 65(5), pages 887-899, December.
    3. William D. Nordhaus, 1974. "The Falling Share of Profits," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 5(1), pages 169-218.
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    Cited by:

    1. Richard B. Howarth, 1996. "Climate Change And Overlapping Generations," Contemporary Economic Policy, Western Economic Association International, vol. 14(4), pages 100-111, October.
    2. Mark A. Moore & Anthony E. Boardman & Aidan R. Vining & David L. Weimer & David H. Greenberg, 2004. "“Just give me a number!” Practical values for the social discount rate," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(4), pages 789-812.
    3. Bachmann, Till M. & van der Kamp, Jonathan, 2014. "Environmental cost-benefit analysis and the EU (European Union) Industrial Emissions Directive: Exploring the societal efficiency of a DeNOx retrofit at a coal-fired power plant," Energy, Elsevier, vol. 68(C), pages 125-139.
    4. Dan Wei and Adam Rose, 2014. "Macroeconomic Impacts of the California Global Warming Solutions Act on the Southern California Economy," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    5. Horowitz, John K., 1995. "Environmental Policy Under a Non-Market Discount Rate," Working Papers 197828, University of Maryland, Department of Agricultural and Resource Economics.
    6. Richard B. Howarth, 2003. "Discounting and Uncertainty in Climate Change Policy Analysis," Land Economics, University of Wisconsin Press, vol. 79(3), pages 369-381.
    7. David M. Anderson & Steven A. Shankle & Michael J. Scott & Duane A. Neitzel & James C. Chatters, 1993. "Valuing Effects Of Climate Change And Fishery Enhancement On Chinook Salmon," Contemporary Economic Policy, Western Economic Association International, vol. 11(4), pages 82-94, October.
    8. Thompson, Philip B, 1997. "Evaluating energy efficiency investments: accounting for risk in the discounting process," Energy Policy, Elsevier, vol. 25(12), pages 989-996, October.
    9. Horowitz, John K., 1996. "Environmental policy under a non-market discount rate," Ecological Economics, Elsevier, vol. 16(1), pages 73-78, January.

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