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					                                Pricing Out Environmental Outcomes Yields Lower Discount Rates

                                                                  David J. Hardisty & Elke U. Weber
                                                                        Columbia University
                         Abstract                                                       Methods: Sample Questions                                          Results: Median Indif. Points
263 US residents from a range of demographic backgrounds                        Which option do you prefer?                                           Domain              Delay             Immediate             Future
considered hypothetical monetary and environmental                              [Within-domain, monetary:]                                                                                  Value                 Value
scenarios with immediate or delayed outcomes (6 months or                                                                                             Money               6 months          $150 now              $212 later
2 years). When discount rates for environmental scenarios                       Receive $150                        OR Receive $195 six months
were measured through willingness-to-accept ("pricing out"),                    immediately                            from now                       Money               2 years           $150 now              $302 later
discount rates for monetary and environmental outcomes                          [Within-domain, environmental:]
                                                                                                                                                      Env Temp            6 months          28 days now 80 days later
were equivalent. However, using a within-domain measure of
discounting yielded much higher discount rates for                              Improved air quality     OR Improved air quality two
environmental scenarios.                                                        immediately, for 28 days    years from now, for 36 days               Env Temp            2 years           28 days now 80 days later
                                                                                [Between-domain, environmental:]
                     Introduction                                                                                                                     Env $ Temp 6 months                   $120 now              $70 now
                                                                                Receive $250                        OR Permanently improved
Discount rates for environmental outcomes (and other non-                       immediately                            water quality six months       Env $ Temp 2 years                    $120 now              $35 now
financial outcomes, such as health or lives) are frequently                                                            from now
measured using one of two different methods.                                                                                                          Env $ Perm 6 months                   $3000 now             $3000 now

                                                                                                                                                      Env $ Perm 2 years                    $3000 now             $700 now
A within-domain measure might have respondents compare                                                            Results
an immediate environmental benefit with a potentially greater
environmental benefit at different points in the future,                                         Between-Domain Measure of Discounting
computing the discount rate from the difference in benefits per
                                                                                                                                                                                Discussion
                                                                                1.2
unit of delay (Baron, 2000).                                                                                                                         Consistent with previous literature, larger magnitude
                                                                                                                                              6 mo   outcomes (permanent environmental gains) were
                                                                                 1
In contrast, a between-domain measure might ask participants                                                                                  2 yr
                                                                                                                                                     discounted less than smaller magnitude outcomes
how much an immediate environmental outcome is worth to                         0.8                                                                  (temporary gains), and longer delays were discounted
                                                                  mean -ln(δ)




them, compared with how much it would be worth to them if it                                                                                         less than immediate delays (Frederick et al, 2002).
were delayed different amounts, then computing the discount                     0.6
rate from the difference in dollar amounts per unit of delay                                                                                         Although environmental gains were discounted similarly
                                                                                0.4
(Hammitt & Harvey, 2000).                                                                                                                            to monetary gains when measured with a between-
                                                                                0.2                                                                  domain metric (ie, pricing them out), environmental gains
Little is known about the whether or how the measurement                                                                                             were discounted much more when measured with a
method chosen affects the imputed discount rates.                                0                                                                   within-domain metric.
                                                                                                 $                   env$Tmp           env$Perm
                 Design Overview                                                                                                                     Why? Perhaps when measured with dollars, participants
263 US residents completed the study over the internet,                                              Within-Domain Measure of Discounting            are primed to think of alternate $ investments and market
making hypothetical choices between immediate and future                                                                                             discount rates. Another possibility is that many
                                                                                3.5
monetary and environmental gains (within-subjects                                                                                                    participants are hesitant to trade off environmental values
manipulation). The environmental scenarios described                             3                                                           6 mo    with money, asserting that an environmental benefit is
                                                                                                                                             2 yr    equally valuable no matter when it is realized, thus
temporary or permanent improvements in air or water quality                     2.5
(between-subjects manipulation).                                                                                                                     translating to lower discount rates.
                                                                  mean -ln(δ)




                                                                                 2
Indifference points were imputed from a series of binary                                                                                                                       References
                                                                                1.5
choices (“choice titration”) and fill-in-the-blank (“matching”)                                                                                      Frederick, S., Loewenstein, G., & O’Donoghue, T. (2002). Time Discounting and
                                                                                                                                                          Time Preference: A Critical Review. Journal of Economic Literature, 40, 351-
items. Discount factors (δ) were log and sign transformed to                     1                                                                        401
                                                                                                                                                     Baron, J. (2000). Can We Use Human Judgments to Determine the Discount Rate?
normalize outliers, especially some instances of negative                                                                                                 Risk Analysis, 20, 861-868
                                                                                0.5
discounting. The pattern of results was similar for air and                                                                                          Hammitt, J. K., & Harvey, C. M. (2000). Equity, Efficiency, Uncertainty, and the
                                                                                                                                                          Mitigation of Global Climate Change. Risk Analysis, 20, 851-860
water quality, so we have grouped them together here for our                     0
                                                                                                                                                     Contact: David Hardisty, http://davidhardisty.info, djh2117@columbia.edu
analyses.                                                                                               $                          envTmp

				
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