Discount Rates: Pricing Future Environmental Costs Today

As natural barriers fell and infrastructure flooded in the path of Superstorm Sandy, some analysts suggested the need for a $10 billion seawall for New York City. While that particular proposal is likely to be an ecological disaster (reestablishing natural wetlands would make more sense) the idea of making investments now to forestall future climate catastrophes was getting a moment in the spotlight—for a New York minute, at least.

How should present-day investments be evaluated in the context of far-off catastrophe? Fortunately, economics gives us useful tools to answer that question; unfortunately, they are plagued by rosy assumptions.