Premium
Using the Wrong Discount Rate to Allocate an Exhaustible Resource
Author(s) -
Rowse John
Publication year - 1990
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1243151
Subject(s) - economics , social discount rate , welfare , microeconomics , resource (disambiguation) , social welfare , natural resource economics , cost–benefit analysis , ecology , biology , market economy , computer science , computer network , political science , law
What are the social welfare implications of using the wrong discount rate to allocate an exhaustible resource? Utilizing a simple numerical model, it is found that, over the (real) discount rate range of 6% to 9%, the welfare losses of employing a rate no more than 3% different from the social rate are small and decline as the social rate rises, even for stringent supply circumstances. However, substantial transfers of surplus between producers and consumers occur as the improper rate deviates from the social rate. Other issues such as income distribution immediately loom larger when a discount rate is chosen.