According to neoclassical environmental economics, how should future environmental benefits and costs be discounted? What are the possible effects of such discounting?
- The process of discounting according to neoclassical utilitarian economics
- The use of discounting in the Cost-Benefit Analysis method
- The major controversies and debates about discounting (especially about the choice of the discount rate) when applied to environmental issues
Since environmental problems are long run problems with, eventually, long run solutions, environmental economics has been much occupied with discount rates, which is a tool used to estimate the value of future costs and benefits, related to present costs or benefits. In other words, discounting is an instrument that can help people decide what is best for them and their future. While planning a project for the future, one needs to be able to evaluate the outcome of such a project and see if it is going to be beneficial or not for the society. According to neoclassical economics, everything can be valued in terms of money. Benefits and costs are calculated according to a money-metric system, and this exercise allows economists to define the utility, or the worth of any economical process.