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Do High Discount Rates Destroy Tropical Forests

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  • C. Price

Abstract

The short‐term viewpoint implicit in high discount rates seems to favour immediate forest exploitation rather than conservation for perpetual benefits. However, the value of logging revenues increases with a lower discount rate, because of the greater weighting given to investible funds. Thus, in several theoretical models, net present value of logging increases as discount rate is lowered. In practice, however, long‐term costs of logging may also incur the weighting appropriate to investment funds; reinvestment of logging revenues may not actually take place; and lower discount rates may be appropriate for costs but not revenues. These circumstances favour conservation, the more so at lower discount rates.

Suggested Citation

  • C. Price, 1991. "Do High Discount Rates Destroy Tropical Forests," Journal of Agricultural Economics, Wiley Blackwell, vol. 42(1), pages 77-85, January.
    • Handle: RePEc:bla:jageco:v:42:y:1991:i:1:p:77-85
    DOI: 10.1111/j.1477-9552.1991.tb00334.x
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    References listed on IDEAS

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    1. Stephen A. Marglin, 1963. "The Opportunity Costs of Public Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 77(2), pages 274-289.
    2. Anthony C. Fisher & John V. Krutilla, 1975. "Resource Conservation, Environmental Preservation, and the Rate of Discount," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 89(3), pages 358-370.
    3. William F. Hyde, 1981. "Timber Economics in the Rockies: Efficiency and Management Options," Land Economics, University of Wisconsin Press, vol. 57(4), pages 630-638.
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    Cited by:

    1. Price, Colin, 2010. "Low discount rates and insignificant environmental values," Ecological Economics, Elsevier, vol. 69(10), pages 1895-1903, August.
    2. Ruttan, Vernon W., 1991. "Sustainable Growth In Agricultural Production: Poetry, Policy And Science," Staff Papers 13601, University of Minnesota, Department of Applied Economics.
    3. Gunatilake, Herath & Wickramasinghe, W. A. R. & Abeygunawardena, Piyasena, 2007. "Time Preference and Natural Resource Use by Local Communities: The Case of Sinharaja Forest in Sri Lanka," ADB Economics Working Paper Series 100, Asian Development Bank.
    4. Thomas Sterner, 1994. "Discounting in a world of limited growth," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(5), pages 527-534, October.

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