What are some of the arguments for a lower discount rate

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Reference no: EM13551557

An activity to improve the well-being of some impoverished people will provide benefits of $1 million right now, but it will obliterate the earth in 200 years. The world's value in 200 years is projected at $1012 (i.e. $1000 billion). There are no costs or benefits between these two dates.

(a) Is it worth avoiding the world's destruction in 200 years at a 10 percent discount rate?
(b) Is it worth avoiding the world's destruction in 200 years at a 6 percent discount rate?
(c) If 10 percent is the interest rate in the private sector, what are some of the arguments for using a 10 percent discount rate?
(d) What are some of the arguments for a lower discount rate?
(e) Do you think discounting and benefit-cost analysis are appropriate ways to handle this problem? Why or why not?

Suppose that the benefits of cutting down the forest of Greenwood is $1 million now, but the environmental cost of that harvest is $10/year forever.

(a) The private market discount rate is 4 percent. On that basis, which options do you expect the government to choose?

(b) If the government has decided to use a discount rate of 0 percent for its environmental policies (no matter what the market rate is), would that change the government's decision?

Reference no: EM13551557

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