The economics of Discounting: Unbalanced growth, uncertainty and spatial considerations

The economics of climate change and the various measures that should be implemented to reduce future damages are highly tied to the use of cost-benefit analysis. Traditional approaches ignore the fact that environmental amenities do not experience the same growth rate as do most of the sectors in the economy, which leads to changing relative prices. Uncertainty should also be considered, especially when one is conducting cost-benefit analysis involving the long-run damages from climate change. This article reviews some theoretical approaches to the economics of discounting and discusses issues associated with unbalanced growth, uncertainty, and spatial discounting.

Keywords: cost-benefit analysis, Environmental amenities, relative prices, spatial discounting, unbalanced growth

Sterner, T., and E. Kyriakopoulou. 2012. The economics of) Discounting: Unbalanced growth, uncertainty and spatial considerations. Annual Review of Resource Economics 4:285–301.