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- Title
OPTIMAL DISCOUNTING OF BENEFITS FROM CLEANUP AT WASTE SITES.
- Authors
Lyon, Kenneth S.; Caliendo, Frank
- Abstract
This paper uses a general equilibrium optimal growth model to discuss the role of optimal discounting of future benefits from cleanup at high-level toxic waste sites. Cleanup simultaneously generates two streams of benefits. One of these is directly from utility and the other is indirectly from the added productivity of workers. We note that the optimal discount rate is different for these two types of benefits. Along the optimal path, the former are discounted at the rate of time preference and the latter at the market rate of interest. We achieve this by identifying four components of the shadow value of the stock of toxic waste. These are the utility, productivity, cost, and abundance effects. The distinction between discount rates appears to have been overlooked in the literature but has significant implications for environmental cost-benefit analysis due to the growing interest in applying zero time preference to environmental problems, (like waste cleanup) whose consequences extend many generations into the future. A numerical example is included to illustrate these concepts.
- Subjects
HAZARDOUS waste site remediation; WASTE disposal sites; INDUSTRIAL pollution; LABOR productivity; DISCOUNT prices; INTEREST rates; COST effectiveness; WASTE management &; the environment
- Publication
Natural Resource Modeling, 2008, Vol 21, Issue 2, p285
- ISSN
0890-8575
- Publication type
Article
- DOI
10.1111/j.1939-7445.2008.00005.x