Ecosystems provide humans with direct and indirect benefits. These
benefits are provided as long-term services. The loss of ecosystems
triggers a loss of these long-term benefits, which means that only
considering the annual value is misleading. For this tool we consider a
25 year period to approximate the impact on benefits received by the
Economists typically apply a social
discount rate when estimating future benefits. This considers the fact
that people have a strong
preference for present consumption. The longer the benefit
is placed in the future the less people value these benefis or costs.
experiments have shown that the rate by which people discount future
value drop, which means that people do not distinguish (much) between
benefits in two years in the distant future. Therefore, the social
rate decreases the further we step into the future. This type of scoial
discounting is referred to as hyperbolic
For our calculation we assume the following to approximate hyperbolic discounting:
- for the next 5 years: 4%
- for the ten
years thereafter an annual drop of the discount rate by 0.4%
- for the ten years thereafter no further
discounting is applied
Rubinstein, A. 2003. Economics and Psychology? The Case of Hyperbolic Discounting.
International Economic Review 44 (4): 1207–1216.
Sozou, P. D. 1998. On hyperbolic discounting and uncertain hazard rates.
Proceedings of the Royal Society B Biological Sciences 265 (1409): 2015.
Frederick, S., Loewenstein, G., O'Donoghue, T. 2002. Time Discounting and Time Preference: A Critical Review.
Journal of Economic Literature 40 (2): 351–401