IDEAS home Printed from https://ideas.repec.org/a/wly/riskan/v37y2017i8p1522-1531.html
   My bibliography  Save this article

Benchmarking Discount Rate in Natural Resource Damage Assessment with Risk Aversion

Author

Listed:
  • Desheng Wu
  • Shuzhen Chen

Abstract

Benchmarking a credible discount rate is of crucial importance in natural resource damage assessment (NRDA) and restoration evaluation. This article integrates a holistic framework of NRDA with prevailing low discount rate theory, and proposes a discount rate benchmarking decision support system based on service‐specific risk aversion. The proposed approach has the flexibility of choosing appropriate discount rates for gauging long‐term services, as opposed to decisions based simply on duration. It improves injury identification in NRDA since potential damages and side‐effects to ecosystem services are revealed within the service‐specific framework. A real embankment case study demonstrates valid implementation of the method.

Suggested Citation

  • Desheng Wu & Shuzhen Chen, 2017. "Benchmarking Discount Rate in Natural Resource Damage Assessment with Risk Aversion," Risk Analysis, John Wiley & Sons, vol. 37(8), pages 1522-1531, August.
    • Handle: RePEc:wly:riskan:v:37:y:2017:i:8:p:1522-1531
    DOI: 10.1111/risa.12824
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/risa.12824
    Download Restriction: no
    File URL: https://libkey.io/10.1111/risa.12824?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Donald H. Rosenthal & Robert H. Nelson, 1992. "Why existence value should not be used in cost-benefit analysis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 11(1), pages 116-122.
    2. Amirnejad, Hamid & Khalilian, Sadegh & Assareh, Mohammad H. & Ahmadian, Majid, 2006. "Estimating the existence value of north forests of Iran by using a contingent valuation method," Ecological Economics, Elsevier, vol. 58(4), pages 665-675, July.
    3. Gollier, Christian, 2010. "Ecological discounting," Journal of Economic Theory, Elsevier, vol. 145(2), pages 812-829, March.
    4. Davidson, Marc D., 2013. "On the relation between ecosystem services, intrinsic value, existence value and economic valuation," Ecological Economics, Elsevier, vol. 95(C), pages 171-177.
    5. Martin L. Weitzman, 2001. "Gamma Discounting," American Economic Review, American Economic Association, vol. 91(1), pages 260-271, March.
    6. Douglas M. Larson, 1993. "On Measuring Existence Value," Land Economics, University of Wisconsin Press, vol. 69(4), pages 377-388.
    7. 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.
    8. Gollier, Christian, 2004. "Maximizing the expected net future value as an alternative strategy to gamma discounting," Finance Research Letters, Elsevier, vol. 1(2), pages 85-89, June.
    9. Gollier, Christian & Weitzman, Martin L., 2010. "How should the distant future be discounted when discount rates are uncertain?," Economics Letters, Elsevier, vol. 107(3), pages 350-353, June.
    10. Ubfal, Diego, 2016. "How general are time preferences? Eliciting good-specific discount rates," Journal of Development Economics, Elsevier, vol. 118(C), pages 150-170.
    11. Gollier, Christian, 2002. "Time Horizon and the Discount Rate," Journal of Economic Theory, Elsevier, vol. 107(2), pages 463-473, December.
    12. Ben Groom & Cameron Hepburn & Phoebe Koundouri & David Pearce, 2005. "Declining Discount Rates: The Long and the Short of it," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(4), pages 445-493, December.
    13. Bonita L. McFarlane, 2005. "Public Perceptions of Risk to Forest Biodiversity," Risk Analysis, John Wiley & Sons, vol. 25(3), pages 543-553, June.
    14. Newell, Richard G. & Pizer, William A., 2003. "Discounting the distant future: how much do uncertain rates increase valuations?," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 52-71, July.
    15. 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.
    16. Baum, Seth D., 2009. "Description, prescription and the choice of discount rates," Ecological Economics, Elsevier, vol. 69(1), pages 197-205, November.
    17. Ruediger Rackwitz, 2004. "Optimal and Acceptable Technical Facilities Involving Risks," Risk Analysis, John Wiley & Sons, vol. 24(3), pages 675-695, June.
    18. Jonathan Silberman & Daniel A. Gerlowski & Nancy A. Williams, 1992. "Estimating Existence Value for Users and Nonusers of New Jersey Beaches," Land Economics, University of Wisconsin Press, vol. 68(2), pages 225-236.
    19. Olga Špačková & Daniel Straub, 2015. "Cost‐Benefit Analysis for Optimization of Risk Protection Under Budget Constraints," Risk Analysis, John Wiley & Sons, vol. 35(5), pages 941-959, May.
    20. Michael S. Hand & Matthew J. Wibbenmeyer & David E. Calkin & Matthew P. Thompson, 2015. "Risk Preferences, Probability Weighting, and Strategy Tradeoffs in Wildfire Management," Risk Analysis, John Wiley & Sons, vol. 35(10), pages 1876-1891, October.
    21. Barbara Miller & Janas Sinclair, 2012. "Risk Perceptions in a Resource Community and Communication Implications: Emotion, Stigma, and Identity," Risk Analysis, John Wiley & Sons, vol. 32(3), pages 483-495, March.
    22. Polizzi, Cecilia & Simonetto, Matteo & Barausse, Alberto & Chaniotou, Ninetta & Känkänen, Riina & Keränen, Silja & Manzardo, Alessandro & Mustajärvi, Kaisa & Palmeri, Luca & Scipioni, Antonio, 2015. "Is ecosystem restoration worth the effort? The rehabilitation of a Finnish river affects recreational ecosystem services," Ecosystem Services, Elsevier, vol. 14(C), pages 158-169.
    23. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
    24. Liu, Liqun, 2012. "Inferring the rate of pure time preference under uncertainty," Ecological Economics, Elsevier, vol. 74(C), pages 27-33.
    25. Joanna Burger & Michael Gochfeld & Karen Pletnikoff & Ronald Snigaroff & Daniel Snigaroff & Tim Stamm, 2008. "Ecocultural Attributes: Evaluating Ecological Degradation in Terms of Ecological Goods and Services Versus Subsistence and Tribal Values," Risk Analysis, John Wiley & Sons, vol. 28(5), pages 1261-1272, October.
    26. Defrancesco, Edi & Gatto, Paola & Rosato, Paolo, 2014. "A ‘component-based’ approach to discounting for natural resource damage assessment," Ecological Economics, Elsevier, vol. 99(C), pages 1-9.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tsan‐Ming Choi & James H. Lambert, 2017. "Advances in Risk Analysis with Big Data," Risk Analysis, John Wiley & Sons, vol. 37(8), pages 1435-1442, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rick van der Ploeg, 2020. "Discounting and Climate Policy," CESifo Working Paper Series 8441, CESifo.
    2. Defrancesco, Edi & Gatto, Paola & Rosato, Paolo, 2014. "A ‘component-based’ approach to discounting for natural resource damage assessment," Ecological Economics, Elsevier, vol. 99(C), pages 1-9.
    3. Lanlan Luo & Shou Chen & Ziran Zou, 2020. "Determining the Generalized Discount Rate for Risky Projects," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(1), pages 143-158, September.
    4. Kollenberg, Sascha & Taschini, Luca, 2016. "Emissions trading systems with cap adjustments," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 20-36.
    5. Eric Fesselmeyer & Haoming Liu & Alberto Salvo, 2022. "Declining discount rates in Singapore's market for privately developed apartments," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(2), pages 330-350, March.
    6. Ben Groom & Cameron Hepburn & Phoebe Koundouri & David Pearce, 2007. "Implications of declining discount rates: Climate Change Policy in the UK," DEOS Working Papers 0702, Athens University of Economics and Business.
    7. Moritz Drupp & Mark Freeman & Ben Groom & Frikk Nesje, 2015. "Discounting disentangled: an expert survey on the determinants of the long-term social discount rate," GRI Working Papers 196a, Grantham Research Institute on Climate Change and the Environment.
    8. Aline Chiabai & Ibon Galarraga & Anil Markandya & Unai Pascual, 2013. "The Equivalency Principle for Discounting the Value of Natural Assets: An Application to an Investment Project in the Basque Coast," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(4), pages 535-550, December.
    9. Freeman, Mark C. & Groom, Ben & Panopoulou, Ekaterini & Pantelidis, Theologos, 2015. "Declining discount rates and the Fisher Effect: Inflated past, discounted future?," Journal of Environmental Economics and Management, Elsevier, vol. 73(C), pages 32-49.
    10. Antonio Nesticò & Gabriella Maselli & Patrizia Ghisellini & Sergio Ulgiati, 2023. "A Dual Probabilistic Discounting Approach to Assess Economic and Environmental Impacts," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 85(1), pages 239-265, May.
    11. Christian Gollier, 2008. "Discounting with fat-tailed economic growth," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 171-186, December.
    12. Jouini, Elyès & Marin, Jean-Michel & Napp, Clotilde, 2010. "Discounting and divergence of opinion," Journal of Economic Theory, Elsevier, vol. 145(2), pages 830-859, March.
    13. Rafał Buła & Monika Foltyn-Zarychta, 2022. "Declining Discount Rates for Energy Policy Investments in CEE EU Member Countries," Energies, MDPI, vol. 16(1), pages 1-27, December.
    14. Fesselmeyer, Eric & Liu, Haoming & Salvo, Alberto, 2016. "How Do Households Discount over Centuries? Evidence from Singapore's Private Housing Market," IZA Discussion Papers 9862, Institute of Labor Economics (IZA).
    15. Gabriella Maselli & Antonio Nesticò, 2021. "The Role of Discounting in Energy Policy Investments," Energies, MDPI, vol. 14(19), pages 1-18, September.
    16. Gollier, Christian, 2009. "Should we Discount the Far-Distant Future at its Lowest Possible Rate?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-14.
    17. Hultkrantz, Lars & A. Krüger, Niclas & Mantalos, Panagiotis, 2014. "Risk-adjusted long-term social rates of discount for transportation infrastructure investment," Research in Transportation Economics, Elsevier, vol. 47(C), pages 70-81.
    18. Patrick Ilg & Silke Gabbert & Hans‐Peter Weikard, 2017. "Nuclear Waste Management under Approaching Disaster: A Comparison of Decommissioning Strategies for the German Repository Asse II," Risk Analysis, John Wiley & Sons, vol. 37(7), pages 1213-1232, July.
    19. Hepburn, Cameron & Groom, Ben, 2007. "Gamma discounting and expected net future value," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 99-109, January.
    20. Szekeres, Szabolcs, 2020. "Correcting the Error in Gamma Discounting," MPRA Paper 102232, University Library of Munich, Germany, revised 27 Jul 2020.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:riskan:v:37:y:2017:i:8:p:1522-1531. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1539-6924 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.