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Using the wrong discount rate to allocate an exhaustible resource

Using the wrong discount rate to allocate an exhaustible resource

American journal of agricultural economics 72(1): 121-130

What are the social welfare implications of using the wrong discount rate to allocate an exhaustible resource? Utilizing a simple numerical model, it is found that, over the (real) discount rate range of 6% to 9%, the welfare losses of employing a rate no more than 3% different from the social rate are small and decline as the social rate rises, even for stringent supply circumstances. However, substantial transfers of surplus between producers and consumers occur as the improper rate deviates from the social rate. Other issues such as income distribution immediately loom larger when a discount rate is chosen.

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Accession: 001997967

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DOI: 10.2307/1243151

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