Journal of Forest Economics > Vol 13 > Issue 43526

Recent advances in discounting: Implications for forest economics

Cameron J. Hepburn, , cameron.hepburn@economics.ox.ac.uk Phoebe Koundouri, , pkoundouri@aueb.gr
 
Suggested Citation
Cameron J. Hepburn and Phoebe Koundouri (2007), "Recent advances in discounting: Implications for forest economics", Journal of Forest Economics: Vol. 13: No. 43526, pp 169-189. http://dx.doi.org/10.1016/j.jfe.2007.02.008

Published: 06 Aug 2007
© 0 2007 Cameron J. Hepburn, Phoebe Koundouri
 
Subjects
 
Keywords
JEL Codes:D61D63D81D92Q23
DiscountingFar-distant futureDeclining discount ratesForestryForest economicsCost–benefit analysis.
 

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In this article:
Introduction: discounting and forest management
The issue of discounting in environmental economics
A recent resolution to the discounting dilemma?
Forestry case studies
Conclusions and recommendations

Abstract

Discounting has played an important role in forestry economics because harvesting cycles are often much longer than project cycles for other investments. For high forests, for instance, most income is derived from thinning and felling up to 80 (sycamore and ash) or even 120 years (oak) after planting. Cost–benefit analysis of such long-term investments is enormously sensitive to the discount rate. Using conventional exponential discounting can generate recommendations that appear contrary to sustainability, if not commonsense. This paper reviews some recent advances in discounting theory, which suggests that social discount rates should decline over time, and applies this theory to three case studies to tease out the implications for forestry economics.

DOI:10.1016/j.jfe.2007.02.008