Non-market valuation relies on individual preference. As humans, we develop preferences knowing we have a finite existence. This limits our ability to value non-market goods because these values are derived from personal benefit during a finite time. Future benefits are discounted for this reason. The benefits from non-market goods endure for much longer than our lifespans. Is there any way to value non-market goods, such as free-flowing rivers, without bias? Are we fit to judge the value of clean and sustainable environments? I would argue that we are not given the current global environmental trajectory. Given the drastic effect of discounting on benefit-cost analysis, there are very serious policy implications. We are talking about life and death decisions here. I think we need to reconsider how we value non-market goods. The undervaluing of these goods will have a very high long term cost to the environment.
Everyday economics from the University of Puget Sound
Very interesting Rob. Thanks. This is hopefully where the social planner comes in, taking into account all concerned, including future generations, and so would have a lower discount rate. The problem, though, is getting people with limited time horizons to vote for policies with long time horizons.