The Ethics of Discount Rates: What can Real Estate Valuation and Investment Experts Learn from Environmental Economics?
||Bienert, Sven; David Steixner
||The Ethics of Discount Rates: What can Real Estate Valuation and Investment Experts Learn from Environmental Economics?
||14th Annual European Real Estate Society Conference in London, UK
||Because of the changes in global climate, our civilization stands before some profound trans-formations which will affect all areas of our lives. In scientific circles it is now generally accepted that a significant portion of the climatic changes is due to human activity. However, up until now two spheres that have not yet been analyzed scientifically in detail are the influence of climatic conditions on the value of land and especially the effects of climate changes on future real estate values. Within this field of research a lot of very specific aspects like the role of discounting and cost-benefit-analysis are of particular interest. This paper critically focuses on the role discount rates play in traditional cost-benefit analysis and real estate valuation. The results will be reflected against the ethical aspect of discounting the future social welfare. Pure time preference as accepted when analyzing marginal problems doesn’t seem to be appropriate when it comes to non-marginal impacts, intertemporal assessment and other aspects involved when dealing with the impact of climate change and the curse of action our civilization should take to avoid irreversible negative changes. We also try to answer what the real estate industry can contribute to the internalization of negative exter-nalities and the role of discount rates in this respect.
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||Session A8: Property Yields and Valuation
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