When a High Discount Rate Encourages Biodiversity

Bob Rowthorn and Gardner Brown

International Economic Review, 1999, vol. 40, issue 2, 315-32

Abstract: Include land in a neoclassical growth model and introduce a standard biogeographic relation between species recliners (biodiversity) and land. Assume that species provide utility. The optimal constant amount of land preserved for species is obtained from steady-state conditions. Contrary to conventional wisdom, a high discount rate preserves more land when the elasticity of substitution between goods and species exceeds unity or when this elasticity is less than unity and technology is such that the output effect of a change in the interest rate exceeds the substitution effect. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1999
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