Recent advances in discounting: implications for forest economics
with Koundouri, Journal of Forest Economics, 13:2, 169-189, 2007.
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 common sense. 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.