Abstract
A major challenge in environmental policymaking is determining whether and how fast our society should adopt sustainable management methods. These decisions may have long-lasting effects on the environment, and therefore, they depend critically on the discount factor, which determines the relative values given to future environmental goods compared to present ones. The discount factor has been a major focus of debate in recent decades, and nevertheless, the potential effect of the environment and its management on the discount factor has been largely ignored. Here we show that to maximize social welfare, policymakers need to consider discount factors that depend on changes in natural resource harvest at the global scale. Particularly, the more our society over-harvests today, the more policymakers should discount the near future, but the less they should discount the far future. This results in a novel discount formula that implies significantly higher values for future environmental goods.
Highlights
A major challenge in environmental policymaking is determining whether and how fast our society should adopt sustainable management methods
Μ does not affect the value given to future goods, and it does not affect the policy and/or the management decisions; rather, μ determines the units and it affects only the relative role of the discount factor and the prices in determining the value of future discount rgaoteo,dδs(3t6),3a7n. dInthteurcnu,mwuelastihvoewditshcoatuntht iΔs ðitmÞ p1⁄4lieRst0δthðta′tÞdtht′e, are given by Eq 5, and the prices of the natural resource and of the other goods are given by Eq A10 (Methods and Supplementary Note 1)
The discount rate and the prices depend on the substitutability of the natural resource and the other goods, which is incorporated in the social welfare function
Summary
A major challenge in environmental policymaking is determining whether and how fast our society should adopt sustainable management methods. These decisions may have longlasting effects on the environment, and they depend critically on the discount factor, which determines the relative values given to future environmental goods compared to present ones. We show that to maximize social welfare, policymakers need to consider discount factors that depend on changes in natural resource harvest at the global scale. The exploitation of ecosystems by humans has long-lasting consequences for the future provision of natural resources and ecosystem services[1,2]. If society is going to be wealthier in the future, one unit of consumed goods in the future may add less to welfare than the same unit today[14,15,16]
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