Research Seminar Environmental & Development Economics“Discounting in the Presence of Ecosystem Services“Sjak Smulders (Tilburg University)

28. November 2018

The Research Seminar Environmental & Development Economics welcomes Sjak Smulders (Tilburg University), who will present his work on

“Discounting in the Presence of Ecosystem Services”.

Place: Zentralbibliothek Recht, Rothenbaumchaussee 33 (Google Maps), Room Ro 33 BG 3/4
Hour: 12:15-13:45
We are looking forward to seeing you there!

Abstract
Discounting has to take account of ecosystem services in consumption and production. The previous literature focuses on the first one and shows the importance of the relative price effect, for given growth rates of consumption and ecosystem services. This paper focuses on intermediate ecosystem services in production and shows that for a limited substitutability and a low growth rate of these ecosystem services, the growth rate of consumption, and thus the discount rate, declines towards a low value. Using a Ramsey optimal-growth framework, the paper distinguishes three cases. If ecosystem services can be easily substituted, the discount rate converges to the usual value in the long term, with a small decrease in the short and the medium term to account for the substitution process. Furthermore, if ecosystem services can be easily substituted in production but not in consumption, the relative price effect occurs. Finally, and most interestingly, if ecosystem services cannot be easily substituted in production, the discount rate declines toward a low value. The previous literature has shown that a declining discount rate is also the result of introducing several forms of uncertainty, but this paper reaches that conclusion because of an endogenous effect on the growth rate of the economy..