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Optimizing Discount Rates: Expressing Preferences for Sustainable Outcomes in Present Value Calculations

David Axelrod ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper describes how the discount rate used in present value calculations expresses the preference for sustainability in decision making, and its implication for sustainable economic growth. In essence, the lower the discount rate, the greater the regard for the future, and the more likely we choose behaviors that lead to long-term sustainability. The theoretical framework combines behavioral economics and holonomics, which involve limitations of regard for the future due to constraints on processing uncertainty. An alternative formulation for present value calculations, which includes a survival function, is developed. A taxonomy of institutions based on discount rate is proposed.

Keywords: Discount Rate; Regard; Sustainability; Present Value; Holonomics; Certainty; Behavioral Economics (search for similar items in EconPapers)
JEL-codes: B59 D03 D81 D9 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-env
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Published in Journal of Applied Business and Economics 1.19(2017): pp. 9-19

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