Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

15

Publisher

Utah State University Department of Economics

Publication Date

2005

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

30

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.

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