Chapter 15: Biodiversity conservation, loss of natural capital and interest rates: the relationships are irregular
The view is widely accepted in natural resource economics that a rise in the market rate of interest usually increases the rate of exploitation of natural resources (reduces their conservation) because it lowers the net present value of deferring their use, that is their user cost. For example, Tietenberg (2003, pp. 92–3) states in his widely adopted textbook that ‘The general conclusions which hold for all models we consider, is that higher discount rates tend to skew resource extraction toward the present because they give the future less weight in balancing the relative value of present and future resource use’. Similarly, Colin Clark (1973; 1976) has argued that a rise in the market rate of interest tends to increase the rate of exploitation of privately owned natural biological resources and increases the likelihood of their extirpation, other things being held constant.
The purpose of this chapter is to emphasize that there is no regular general relationship between the level of the market rate of interest and the rate of depletion of natural capital, particularly biological capital. This is most clearly seen when macroeconomic relationships are taken into account. The results depend on the hypothesis that the rate of exploitation of natural resources and the extent of transformation of natural environments tend to rise with the level of aggregate economic activity, for example, as measured by the level of GDP. Although all growing economic activity tends to have this effect (Georgescu-Roegen, 1971), it is possible that...
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