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Diminishing marginal utility: the respectable case for discounting?

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  • Colin Price

Abstract

Diminishing marginal utility is a potentially reasonable basis for discounting increasing future consumption per head. However, it applies to a different extent to those whose income growth prospects differ, to different growth scenarios, and to products whose output is differently constrained by natural resource and technological limitations. Diminishing marginal utility is irrelevant to non-marginal consumption and to the totality of consumption. It may even, perversely, lead to some non-marginal values increasing through time. As for that means of increasing consumption − reinvestment of revenues − it is constrained by circumstances and in practice does not happen to the extent required to justify customary discount rates. The simplifying assumption of a uniform discount rate depends on possibilities for trading that actually do not exist.

Suggested Citation

  • Colin Price, 2003. "Diminishing marginal utility: the respectable case for discounting?," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 6(1), pages 117-132.
    • Handle: RePEc:ids:ijsusd:v:6:y:2003:i:1:p:117-132
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    Citations

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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. Stefan Bayer, 2004. "Nachhaltigkeitskonforme Diskontierung: das Konzept des "Generation Adjusted Discounting"," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 73(1), pages 142-157.
    3. Stefan Bayer, 2003. "Generelle Nichtdiskontierung als Bedingung für eine nachhaltige Entwicklung?," IAW Discussion Papers 13, Institut für Angewandte Wirtschaftsforschung (IAW).
    4. Stefan Baumgärtner & Alexandra Klein & Denise Thiel & Klara Winkler, 2015. "Ramsey Discounting of Ecosystem Services," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 273-296, June.
    5. Price, Colin, 6. "Optimal Rotation under Continually – or Continuously – Declining Discount Rate," Scandinavian Forest Economics: Proceedings of the Biennial Meeting of the Scandinavian Society of Forest Economics, Scandinavian Society of Forest Economics, issue 42, April.
    6. Weikard, Hans-Peter & Zhu, Xueqin, 2005. "Discounting and environmental quality: When should dual rates be used?," Economic Modelling, Elsevier, vol. 22(5), pages 868-878, September.
    7. Price, Colin, 2017. "Optimal rotation with negative discount rates: completing the picture," Journal of Forest Economics, Elsevier, vol. 29(PB), pages 87-93.

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