The Influence of Discounting Ecosystem Services in Robust Multi-Objective Optimization – an Application to a Forestry-Avocado Land-Use Portfolio

Discounting is standard in economics to consider time preferences of people and account for future market changes. However, so far discounting has mainly been applied to monetary flows and ignored for many ecosystem services. In multi-objective optimization, selectively disregarding time preference for some non-monetary services create bias. Here we study how discounting a range of ecosystem service indicators influences a public planner’s optimal land allocation. We used a robust multi-objective optimization approach to model a mixed forestry-avocado farm portfolio in South Africa. The objectives for optimization were the provisioning of various ecosystem services and disservices represented by four indicators: net present value, payback period, carbon sequestration, and fertilizer use. To account for time preferences concerning indicator flows, we applied specific discount rates to each ecosystem service indicator, depending on its character (non-monetary or monetary indicators). We demonstrate that discounting reduces the standard deviations of the discounted sum of the indicators, which leads to less diversified land-use portfolios. To account for discount rate uncertainty, we introduced three indicator sets, each using a different discount rate, which was off setting the effect of decreasing diversification