USING THE WRONG DISCOUNT RATE TO ALLOCATE A MARINE RESOURCE

How does conventionally defined social welfare (SW) decline when a marine resource is allocated over time using a discount rate different from the social discount rate (SDR)? Utilizing a computational, discrete-time stylized anchovy model it is found that, for SDRs in the range 4–7%, using a rate different from the SDR by three percentage points or less yields small percentage welfare losses. The largest loss is 3.34% of the welfare associated with the efficient dynamic path. More pronounced percentage surplus transfers between consumers and producers occur as the improper rate diverges from the SDR. Generalizing from such results is problematic, because different marine resources can exhibit vastly different demand and supply circumstances. To the extent that the results generalize, however, they offer some comfort to practitioners who must use a numerical SDR in a marine resource model. Yet, income distribution issues may loom larger when a discount rate is selected.