Should you drain the swamp to build a shopping center? The answer depends on the discount rate, and this parable shows why the choice of rate matters so much for environmental cost-benefit analysis.

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Abstract

We use a parable involving the decision to drain a swamp to build a shopping center to illustrate the importance of the discount rate in environmental cost-benefit analysis. The parable demonstrates that standard discounting practices can lead to decisions that are neither efficient nor sustainable, and that the choice of discount rate is itself an economic decision with important welfare implications.

BibTeX

@Article{	  berck-ligon96,
  author	= {Peter Berck and Ethan Ligon},
  title		= {The Swamp and the Shopping Center: An Interest Rate
                Parable},
  journal	= {Ecological Modelling},
  year		= 1996,
  volume	= 92,
  pages		= 275
}