PT  - JOURNAL ARTICLE
AU  - Howarth, Richard B.
TI  - Discounting and Uncertainty in Climate Change Policy Analysis
AID  - 10.2307/3147023
DP  - 2003 Aug 01
TA  - Land Economics
PG  - 369--381
VI  - 79
IP  - 3
4099  - http://le.uwpress.org/content/79/3/369.short
4100  - http://le.uwpress.org/content/79/3/369.full
SO  - Land Econ2003 Aug 01; 79
AB  - Economic studies of climate change commonly discount the future at a rate equal to the long-run return on corporate stocks. Stock market returns, however, are dominated by a risk premium, while climate change mitigation measures would reduce important risks to future welfare. Drawing on the theory of investment behavior under uncertainty, this paper argues that the benefits of climate stabilization policies should be discounted at a rate equal to the annual return on risk-free financial assets, which attains an empirical value between 0 and 2.6%. In addition, expected benefits must be adjusted to account for the value of risk abatement. (JEL Q21)