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Using the Wrong Discount Rate to Allocate an Exhaustible Resource

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  • John Rowse

Abstract

What are the social welfare implications of using the wrong discount rate to allocate an exhaustible resource? Utilizing a simple numerical model, it is found that, over the (real) discount rate range of 6% to 9%, the welfare losses of employing a rate no more than 3% different from the social rate are small and decline as the social rate rises, even for stringent supply circumstances. However, substantial transfers of surplus between producers and consumers occur as the improper rate deviates from the social rate. Other issues such as income distribution immediately loom larger when a discount rate is chosen.

Suggested Citation

  • John Rowse, 1990. "Using the Wrong Discount Rate to Allocate an Exhaustible Resource," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(1), pages 121-130.
    • Handle: RePEc:oup:ajagec:v:72:y:1990:i:1:p:121-130.
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    File URL: http://hdl.handle.net/10.2307/1243151
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    Cited by:

    1. Rose, Roger & Cox, Anthony, 1991. "Australia's natural resources: optimising present and future use," Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) Archive 316171, Australian Government, Australian Bureau of Agricultural and Resource Economics and Sciences.

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