Discounting and the environmental valuation: should dual discount rates be used?

Intertemporal choice plays a central role in economic decision-making, as many individual and public choices involve trade-offs between costs and benefits occurring at different points in time. These trade-offs are typically summarized by the discount rate, which reflects the extent to which future outcomes are devalued relative to present ones. Accurate estimation of discount rates is therefore crucial for understanding individual behavior, evaluating public policies, and conducting cost-benefit analysis, particularly in contexts involving long-term impacts such as environmental protection and resource management. Despite a substantial empirical literature employing both laboratory and field data, there remains no consensus on the most appropriate method for measuring time preferences.

This paper reviews and discusses the conceptual foundations of intertemporal choice and discounting, with particular attention to their role in cost-benefit analysis and policy evaluation. It outlines the ethical and practical challenges associated with discounting future outcomes and examines the main empirical approaches used to estimate discount rates, distinguishing between exogenous and endogenous methods. Special emphasis is placed on experimental and stated preference techniques, including discrete choice experiments and discount rate elicitation tasks, which have been widely applied to infer individual time preferences. By synthesizing insights from the existing literature, this study highlights the strengths and limitations of alternative estimation strategies and underscores the importance of carefully accounting for time preferences when analyzing decisions with intertemporal consequences.