Discounting the Discount Rate: Ecocentrism and Environmental Economics

As a tool for making decisions about long-term environmental policy, environmental economics does not work on its own terms. It works well as a tool for analyzing environmental policy given clear, exogenously defined costs and benefits. As such, environmental economics can work well as a tool for analyzing policy in the short term. But many of the most salient issues in international environmental politics are salient specifically because they have a fundamental long-term component. Economic tools have trouble pricing environmental goods, and the farther the cost element of cost/benefit analysis is projected into the future, particularly through the analytical tool of the discount rate, the less reliable estimates are likely to be. At a certain point, the compounding of this decreasing reliability makes the cost estimates analytically counterproductive. As such, this paper concludes that fundamental decisions about the relationship between economic activity and the natural environment in the long term need to be informed by ecocentric rather than economic thinking. (c) 2006 by the Massachusetts Institute of Technology.