Publication Details

Category Text Publication
Reference Category Journals
DOI 10.1016/0921-8009(93)90019-3
Title (Primary) Intertemporal valuation in an unpredictable environment
Author Drepper, F.R.; Månsson, B.Å.
Source Titel Ecological Economics
Year 1993
Department CLE
Volume 7
Issue 1
Page From 43
Page To 67
Language englisch
Abstract The inherent unpredictability of ecological systems is a vital feature for the development of theories at the interface between economics and ecology. Such unpredictability is caused by instabilities that are intrinsic parts of ecosystem function, succession and evolution. The complexity of ecological dynamics undermines the simple probabilistic treatment of uncertainty based on the equilibrium paradigm, common in traditional environmental economics. We investigate an important alternative by representing the dynamics of the biogeophysical system as an infinite sequence of instabilities. This leads to a stochastic process exhibiting an exponentially growing variance. Our analysis is carried out in a macroeconomic setting in a situation where the value system, here formalized in terms of risk-averse social welfare functions, contains at least two distinct aspects: consumption rate and the state of the environment. The central variables for intertemporal valuation, i.e. the time-dependent expected values of the two welfare function components, are calculated using the probability distribution describing the environmental dynamics. One result is that if the unpredictability of the environmental dynamics is taken into account, then the social discount rate for environmental existence values may well be negative.
Persistent UFZ Identifier
Drepper, F.R., Månsson, B.Å. (1993):
Intertemporal valuation in an unpredictable environment
Ecol. Econ. 7 (1), 43 - 67 10.1016/0921-8009(93)90019-3