Open AccessTHE RATE OF DISCOUNT AND THE PRESERVATION OF NATURAL ENVIRONMENTS
Author(s) -
Krautkraemer Jeffrey A.
Publication year - 1988
Publication title -
natural resource modeling
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.28
H-Index - 32
eISSN - 1939-7445
pISSN - 0890-8575
DOI - 10.1111/j.1939-7445.1988.tb00066.x
Subject(s) - economics , elasticity (physics) , natural resource , natural capital , microeconomics , natural resource economics , price elasticity of demand , econometrics , capital (architecture) , ecology , biology , archaeology , history , materials science , ecosystem , ecosystem services , composite material
This paper examines the relationship between the rate of discount and the the optimal level of permanently preserved natural environments. A lower rate of discount increases the demand for both preserved environments and capital accumulation. The greater demand for capital indirectly increases the demand for the productive resource inputs found within the natural environments thereby reducing the level of preservation. This indirect effect outweighs the direct effect of the rate of discount on the level of preservation if the elasticity of output with respect to capital is greater that the elasticity of output with respect to the resource input. In general, the asymptotic values of the output elasticities depend upon the rate of discount and so there can be a nonmonotonic relationship between the rate of discount and the optimal level of permanently preserved natural environments.